Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

MESSAGE FROM THE QUEEN

QUEEN'S SPEECH (ANSWER TO ADDRESS)

THE VICE-CHAMBERLAIN OF THE HOUSEHOLD reported Her Majesty's Answer to the Address, as follows:

I have received with great satisfaction the loyal and dutiful expression of your thanks for the Speech with which I opened the present Session of Parliament.

PRIVATE BUSINESS

BRIGHTON CORPORATION BILL (By Order)

Read a Second time and committed.

GLASGOW CORPORATION (CARNOUSTIE STREET) BRIDGE ORDER CONFIRMATION BILL

Considered; to be read the Third time Tomorrow.

Oral Answers to Questions — OVERSEAS DEVELOPMENT

India (Famine Relief)

Mr. Iremonger: asked the Minister of Overseas Development if he will make a statement on the contribution being made by projects financed by Great Britain towards the relief of famine in India; and when such projects were started.

The Minister of Overseas Development (Mr. Anthony Greenwood): The British Government made available in February this year an interest-free loan of £7·5 million to help India with her present food crisis. Since the purpose of this loan was to provide immediate assistance, no part of it was tied to

specific projects. In agreement with the Government of India, it will be used towards the foreign exchange costs of shipping emergency supplies of wheat and other foodstuffs from Commonwealth countries, the provision of grain handling equipment for Indian ports and the purchase of commodities of immediate value in helping to deal with the emergency, including pesticides and fertilisers.
In addition, as my right hon. Friend the Prime Minister announced on 26th April, the Government of India have accepted with pleasure our offer to make immediately available as an advance instalment of Britain's aid pledge for 1966–67, loans of £17 million directed to India's pressing economic problems, among which is the food shortage. [HON. MEMBERS: "Too long."] Once again, this money will be immediately available for a wide range of essential imports and not tied to specific projects.

Mr. Speaker: Order. I hope that Ministers will attempt to answer briefly.

Kenya (British-Owned Farms)

Mr. Wall: asked the Minister of Overseas Development if he will make a statement about the progress of discussions between the British and Kenya Governments regarding the continued valuation and purchase of British-owned farms for African resettlement.

The Parliamentary Secretary to the Ministry of Overseas Development (Mr. Albert E. Oram): As the hon. Member will recall from the statement which my right hon. Friend's predecessor placed in the Library of the House on 18th November last, a working party was set up after the talks with Kenya Ministers last November to recommend a method of valuation for purchases of agricultural land in Kenya from British loans. The working party, which consisted of representatives of both the British and Kenya Governments, presented its report in the middle of April; the report is now being considered by both Governments. The Kenya Government are now drawing up a programme for the purchase of mixed farms from funds provided by the British Government. The Kenya Ministers of Agriculture and of Finance discussed with my right hon. Friend their ideas for this when they were in London last week.


Further discussions on the programme are continuing.

Mr. Wall: Is the joint Kenya Government-British Government team for the valuation of property now actually effective in Kenya?

Mr. Oram: It is this body which has reported, and it is that report which is being considered.

Mr. Wall: asked the Minister of Overseas Development if he will make a statement on the progress of the scheme for the purchase of property from compassionate cases in Kenya.

Mr. Oram: Under the current scheme, offers of purchase for farms have been accepted in 18 cases. The Kenya authorities are now engaged in valuing about 20 further cases. Unfortunately, valuation has been delayed due to shortage of staff, but I understand that this will be completed in the near future.

Mr. Wall: Is the hon. Gentleman aware that there is a great deal of frustration at the delay taking place in implementing these schemes and there seems to be a lack of co-operation or co-ordination between the British Government and the Kenya Government? Will he look into this matter seriously, recognising that the valuations offered in compassionate cases are very low indeed?

Mr. Oram: I recognise that this is a difficult and complicated matter, and I hope that the hon. Gentleman does, too. I assure him that we have the interests of these compassionate cases very much at heart.

Mr. Maudling: Can the hon. Gentleman say what is the basis of valuation of the farms in the compassionate cases?

Mr. Oram: That is in the report which is now being considered. It has not yet been published.

Mr. John Hynd: Will my hon. Friend look into the question of what relationship there is between the prices which are being offered for these lands and the prices which the settlers originally paid for them?

Mr. Oram: I have no doubt that this is one of the factors which the working party will have taken into account.

Nigeria (Aid)

Mr. Fisher: asked the Minister of Overseas Development whether he will make a statement about future aid to Nigeria, following his recent visit there.

Mr. Greenwood: I am glad to have this opportunity of saying that I was greatly impressed by what I saw of Nigeria's economic development. I intend to continue to support their development programmes. Our programme of technical assistance and supplementation of salaries of certain British personnel will shortly rise to about £2 million per annum, and of the £50 million of capital aid offered to Nigeria since they achieved independence, £21 million remains to be disbursed over the next few years. While I was in Lagos, I announced that Her Majesty's Government would, subject to Parliamentary approval, make an additional loan to Nigeria of £2·356 million.

Mr. Fisher: Did the right hon Gentleman meet any of our technical assistants or V.S.O. people during his visit, and will he confirm that they are doing most valuable work there which is greatly appreciated?

Mr. Greenwood: I am most grateful to the hon. Gentleman. I met a large number of them, and it is perfectly true that the work they are doing is greatly appreciated by the Nigerian Government and the Nigerian people.

Eastern Caribbean Territories (Aid)

Mr. Fisher: asked the Minister of Overseas Development how the amount of British Government aid to the territories of the Eastern Caribbean compares with that allocated to other colonies and independent Commonwealth countries; and whether he will estimate when the Tripartite Economic Survey will be completed.

Mr. Oram: In 1965 British Government aid to the dependent territories of the Eastern Caribbean averaged out at the rate of about £4 4s. per head. For other dependent territories the corresponding average was just under £3 per head and for all independent Commonwealth countries in receipt of aid the figure was just over 3s.
The Tripartite Economic Survey has just completed its work and I understand that its report will be forwarded to the sponsoring Governments shortly.

Mr. Fisher: While I accept that the Eastern Caribbean is not doing at all badly in relation to other territories, may I ask whether the Minister can indicate at this stage what the economic prospects are likely to be for the future in view of the Tripartite Survey? Will there be an improvement?

Mr. Oram: It is too early for me to say anything about the contents of the Tripartite Survey. I ask the hon. Member to await further information on this point.

Sir C. Osborne: How far are the Government entitled to keep making gifts and loans to these Governments when we ourselves are having to borrow money continually from America?

Mr. Oram: I thought that hon. Members on all sides of the House were agreed that the problem of world poverty is one which we are willing to tackle.

Co-operative Societies

Mr. Pavitt: asked the Minister of Overseas Development what was the approximate amount spent last year on projects which were identifiable as being for the extension or promotion of co-operative societies.

Mr. Oram: It is possible to give a figure for the amount spent on the encouragement of co-operative development only in respect to the provision of experts and to the activities, such as training courses, which are financed n the United Kingdom. This is currently estimated to be in the region of £100,000 per annum.
An unjustifiable amount of labour would be involved in identifying the amount spent on overseas activities since it is mainly contained within aid given in the form of general budgetary support or in support of development plans.

Mr. Pavitt: Is there a plan to increase this over the next five years? Is my hon. Friend aware that of all technical

assistance this is probably the most helpful at the grass roots?

Mr. Oram: There is no specific plan for an increase, but my hon. Friend is aware that we are anxious to help the development of co-operatives whenever we can. I agree with him that this is a most important form of technical assistance.

Mr. Pavitt: asked the Minister of Overseas Development how many experts in the development of co-operative societies are at present being provided to overseas Governments; and if he will give their names, the type of co-operative advice covered, and posts of duty, in the OFFICIAL REPORT.

Mr. Oram: Eight experts provided under technical assistance were in post during the past year advising overseas Governments on co-operative questions.

Hon. Members: Hear, hear.

Mr. Speaker: Order. It is not worth as long an interruption as that.

Mr. Oram: I thought for a moment, Mr. Speaker, that you were referring to the Answer, not to the arrival of my hon. Friend the Member for Pontypool (Mr. Abse).
I will, with permission, circulate the information requested in the OFFICIAL REPORT. In addition, there are approximately 45 British officers serving in posts concerned with co-operatives in overseas administrations under the Overseas Service Aid Scheme.

Mr. Pavitt: Is my hon. Friend aware that the sartorial elegance of my hon. Friend the Member for Pontypool (Mr. Abse) made it difficult to hear the reply? Will he take into consideration the fact that the I.L.O. has a similar programme to that which he has announced? Will he make representations to his right hon. Friend the Minister of Labour to have representatives from his Department at I.L.O. conventions on co-operatives?

Mr. Oram: I will bear that suggestion in mind. I recently had a talk with the Director-General of I.L.O. in which these matters of co-operative development were discussed.

The following is the information:

Name of Expert
Description
Post


J. S. Roberts
Adviser on Co-operative Education and Training
Nigeria


J. H. Thomas
Adviser on Co-operative Banking
Nigeria


D. L. B. Quennell
Co-operative Society Auditor
Malawi


J. C. Elphick
Co-operative Society Auditor
Malawi


J. J. Guy…
Adviser on Co-operatives
Uganda


R. C. Gates
Expert on Co-operative Training
Uganda


M. C. Wordsworth
Co-operative Adviser
Iran


H. R. H. Kelly
Co-operative Marketing Officer
Bolivia

Under-developed Countries (Aid)

Mr. Judd: asked the Minister of Overseas Development what target he has set, within the context of the five year plan, for the proportion of the national income to be spent on overseas aid and development.

Mr. J. H. Osborn: asked the Minister of Overseas Development, in view of the necessity for resolving the balance of payments problems, and in the context of the National Plan, if he will table in the OFFICIAL REPORT the total aid to under-developed countries; what percentage of the budgeted gross national product this will be; how much will be public aid; of the public aid, what proportion will be interest-free grants; how much will be private investment overseas planned for each of the next five years; and whether he will make a statement.

Mr. Greenwood: The National Plan states that the size of the aid programme will be reviewed periodically in the light of the progress made in overcoming our economic problems. We have been able to set out a target of £225 million for official aid in the current financial year which is expected to be about 0·7 per cent. of the gross National Product. The UNCTAD target of 1 per cent. of "national income" includes private investment, and this we are meeting.
I cannot forecast what proportion will be grants or interest-free loans nor what the amount of private investment will be during the next five years.

Mr. Judd: In view of the statement made last week on aid to Indonesia,

would my right hon. Friend be willing to launch a campaign in the company of many interested voluntary organisations on the importance of aid and development as a means of helping world stability?

Mr. Greenwood: I think that the importance of economic aid as a help to world stability is appreciated on both sides. I shall be glad to discuss the matter with my hon. Friend if he so wishes.

Mr. Osborn: Has the Minister now the power to correlate investment overseas with public aid?

Mr. Greenwood: That is dealt with in a later Question.

Mr. Maudling: Can the Minister say whether he is proceeding with the idea of surplus capacity aid—additional aid in cases where the form of the aid is found to be available from surplus capacity in this country?

Mr. Greenwood: This is something, which we keep in mind, but on a previous occasion I have explained the difficulties of doing it. We should like to do it but it is not always possible.

Mr. J. H. Osborn: asked the Minister of Overseas Development how much of the total overseas aid to underdeveloped countries given by Great Britain in 1965 was in the form of private investment overseas; what was the value of this aid; how this compared with each of the previous three years; and what proposals he has for encouraging commercial investment overseas, designed to give a good return on the capital invested, with a view to bringing about a long-term improvement in the balance of payments.

Mr. Greenwood: Official aid was £194 million in 1965. Private investment in developing countries was very approximately £110 million—net of dis-investment—compared with £70 million in 1963 and £85 million in 1964. My primary concern with private investment is in its contribution to development and questions on general issues of trade and financial policy should properly be addressed to my right hon. Friends with major responsibilities in these fields.

Mr. Osborn: Is the Minister satisfied that the balance is right or will it be


necessary to concentrate on a greater correlation with private investment overseas?

Mr. Greenwood: It is important to get the right balance between these two. There are very many economic problems involved.

Mr. Maxwell: Will my hon. Friend bear in mind that while we have this very difficult balance-of-payments problem, development aid is a very serious drain on us? Will he give further consideration to using the surplus capacities of agriculture and industry in this country for this purpose until the drain on our balance of payments has been improved?

Mr. Greenwood: These are matters which we have constantly in our mind, but we have to try to strike the right balance between giving the necessary aid to developing countries and protecting our own economic interests.

Mr. Baker: asked the Minister of Overseas Development what proportion of aid to under-developed countries was tied to British manufactured goods in the last financial year.

Mr. Greenwood: Figures for the financial year 1965–66 are not yet available. 43 per cent. of our official bilateral aid disbursed in the calendar year 1965 was wholly tied and another 16 per cent. partly tied. A significant part of the disbursement under technical assistance, pensions and compensation, will also have been spent in the United Kingdom.

Mr. Baker: Do the figures which the right hon. Gentleman has quoted represent Government forward planning for the future? Does he consider that a good deal of aid to the under-developed countries in respect of services such as fishing boats could be produced from development areas in this country?

Mr. Greenwood: The figures which I gave were for the last calendar year, but considerations such as that which the hon. Member raised are very much in our minds and we try to get a synthesis between the interests of the countries we are helping and the economic requirements of the United Kingdom.

Mr. Bruce-Gardyne: Does the Minister think that the figures which he has given to my hon. Friend are satisfactory, par-

ticularly in view of the fact that a Brooking's Institute Report showed that in the case of American aid about 90 per cent. was tied? Does he think that we can get away with a lower proportion than the United States in view of our balance-of-payments position?

Mr. Greenwood: I think that the balance is about right. We do tie less aid than a number of countries but more than many others. In view of our special responsibilities to many of the independent countries of the world as well as to our dependent territories, I think that the balance is right.

Africa (Agricultural Experts)

Mr. Jopling: asked the Minister of Overseas Development what plans he has, and what discussions he has had with overseas bodies to create training facilities in Africa for agricultural experts, who are beginning periods of duty in Africa, to familiarise them with the agricultural problems and conditions of the continent.

Mr. Oram: None, Sir.

Mr. Jopling: Is the Minister aware that experts in temperate agriculture are of limited use in the first few months of their service? As the length of their service is likely to be short, much of this period is likely to be wasted because they do not understand the conditions. Would he not look at the problem again in view of the urgency of the need to avoid wasted time?

Mr. Oram: I have explained to the hon. Member on an earlier occasion that there are training facilities in Trinidad. I know that this does not satisfy him, but familiarisation with local conditions is effectively achieved by posting to a specific job experts in tropical agriculture who have received their general training at such establishments as the Faculty of Agriculture of the University of The West Indies.

Tanzania, Zambia and Malawi (Aid)

Mr. Edward M. Taylor: asked the Minister of Overseas Development, how much has been given or promised in aid or loans since October, 1964, to Tanzania, Zambia, and Malawi, respectively.

Mr. Greenwood: Since October, 1964, £1·3 million has been promised to Tanzania, £32 million to Malawi—for the period up to 1968—and £16·75 million to Zambia—for the period up to 1970.
Actual disbursements, including technical assistance, between October, 1964, and December, 1965, were about £7 million for Tanzania, £15 million for Malawi and £7·4 million for Zambia. In addition, Britain has so far spent about £7 million on contingency arrangements for asisting Zambia following the Rhodesian I.D.I.

Mr. Taylor: Is the Minister satisfied the Malawi will continue to get its fair share of aid from this country, bearing in mind that consistently and voluntarily she follows a policy of buying British goods wherever possible?

Mr. Greenwood: We shall seek to ensure that all the countries to which we have promised help get their fair share.

Voluntary Service Overseas

Mr. Geoffrey Lloyd: asked the Minister of Overseas Development if he will take steps, in consultation with the voluntary organisations concerned, to extend the period for which the majority of young qualified volunteers are sent overseas, and to improve their qualifications.

Mr. Oram: These important questions are constantly reviewed by the Ministry and the voluntary bodies concerned.

Mr. Lloyd: Is it not important to review these matters to make sure that British volunteers compare favourably with those from other countries in respect of their qualifications and the length of time they stay to do a job in the countries concerned?

Mr. Oram: Yes, Sir. This is most important. I think that our volunteers do compare very favourably with volunteers from other countries. But length of service and training are important considerations which we have in mind.

Mr. Molloy: Can my hon. Friend confirm that liaison between his Department and the educational authorities is proceeding in this respect?

Mr. Oram: Yes. I can assure my hon. Friend that we have constant contact with

schools and local education authorities on these matters.

Mr. John Hynd: Will the Minister tell us whether there is any evidence whatever for the suggestion which has been made in the Press about the low quality of British volunteers?

Mr. Oram: The reports in the Press to which my hon. Friend refers have been taken somewhat out of context of the Report on which they are based. I am very well satisfied that our young people compare very favourably with those from other countries.

Oral Answers to Questions — TECHNOLOGY

Machine Tools (Export Orders)

Mr. Biffen: asked the Minister or Technology what was the percentage change for net export orders for machine tools between the second half of 1965 and the corresponding period in 1964.

The Joint Parliamentary Secretary to the Ministry of Technology (Mr. Peter Shore): Between the second half of 1964 and the corresponding period in 1965 the value of net export orders for machine tools fell by an amount estimated at 16 per cent.

Mr. Biffen: I congratulate the hon. Gentleman on his appointment. As the sponsoring Minister, what does he think accounts for this disturbing fall in machine tool export orders?

Mr. Shore: I do not think that too many inferences should be drawn from a single set of figures. It is equally relevant that outstanding orders for exports of the machine tool industry at the end of 1965 were only 2 to 3 per cent. lower than at the end of 1964. However, we shall be watching the situation.

Atomic Energy Authority (Non-atomic Work)

Mr. Neave: asked the Minister of Technology what estimate he has made of the cost of non-atomic work to be carried out by the United Kingdom Atomic Energy Authority in the years 1966–70; and what proportion of total expenditure on civil nuclear research this would represent.

The Minister of Technology (Mr. Frank Cousins): During 1966–67 the Authority expects to spend about £1·5 million on non-atomic research and development, including £·5 million on repayment. This is equivalent to some 3 per cent. of its civil R. and D. budget for the year. No estimates are yet available of the cost of non-atomic work in subsequent years, but we expect this to rise.

Mr. Neave: Would the right hon. Gentleman say whether this has brought any reorganisation on the staff side? If members of the staff wish to be transferred to private industry, for example, what arrangements are made for transferability of their pensions?

Mr. Cousins: Any change which we are contemplating at the moment does not necessarily have an effect on staff movement, but this subject is under review with the staff. Although I am not in control of the business arrangements between the Atomic Energy Authority and its staff, I am conscious that it is making very generous approaches to the idea of transferability and interchange of pension rights with a number of private businesses and with Government Departments.

Hovercraft

Dr. Bennett: asked the Minister of Technology what has been the total expenditure of public funds on Hovercraft development in each of the last five years; and what are his estimates for each of the next five years.

Mr. Cousins: The figures of expenditure by the N.R.D.C. are as follows for the year starting 1st July:

1961
…
…
£731,000


1962
…
…
£286,000


1963
…
…
£271,000


1964
…
…
£287,000


9 months





from 1.7.65
…
£603,000

Estimates are now related to financial years. The figure for 1965–66 is £1,053,000.

Dr. Bennett: While the early support gave this valuable project a lot of acceleration, is it not a fact that the support has not been good enough to keep the momentum of the project going as it should have been? Is it not unfortunate that the support should have been chiselled down as it has been?

Mr. Cousins: I am sure that the hon. Gentleman did not listen carefully to the figures which I gave, because I quoted those for 1961 to 1964 which showed that there had been a fairly substantial decline, but since then we have increased the tempo, because we are very conscious of the approaches made by Hovercraft which said that it was not getting sufficient money.

Mr. Hector Hughes: Can my right hon. Friend say how far this great expenditure has been successful in making Hovercraft sufficiently seaworthy to cross not only the English Channel, but the North Sea?

Mr. Cousins: In the Ministry we have made it clear that we regard Hovercraft development as very important. We know that the new company which has been created will accelerate developments and we are helping as much as we can in that direction.

Mr. Lubbock: Do the amounts of money which the right hon. Gentleman has mentioned cover other applications of the air cushion principle as well as Hovercraft themselves? For example, do they cover Hovertrains? Is the right hon. Gentleman satisfied that these amounts are yet sufficient for us to maintain our world lead?

Mr. Cousins: The figures do not include applications of other forms of air cushion travel, because the Question was specifically directed to Hovercraft. However, we are conscious of the need for developing these other forms, but the hon. Gentleman will realise that there was some argument in the House about whether this was a form of travel which could be expected to develop more than other forms of traffic movement.

Mr. David Price: How soon will the Defence Departments have finished their proving tests of possible uses of Hovercraft in defence, and how soon will Hovercraft know whether it is to get production orders?

Mr. Cousins: Questions relating to defence should be addressed to the appropriate Minister.

Dr. Bennett: asked the Minister of Technology what money he expects to receive from the sale of patent rights or


licences for the manufacture of Hovercraft abroad.

Mr. Shore: None, Sir. Income from agreements to license the manufacturers of Hovercraft abroad accrues to Hovercraft Development Ltd., a subsidiary of the N.R.D.C. But no estimate of future income can yet be made. [Interruption.]

Dr. Bennett: While the Chancellor of the Exchequer, who has just entered the Chamber, will need all the luck he can get, has not the Government failed to support Hovercraft Limited in getting these licences for reasonable sums of money?

Mr. Shore: I do not know how the hon. Gentleman could have drawn that inference from my Answer. The problem of getting other nations themselves to manufacture Hovercraft under British licence is very much a question of the developments going on in those other countries, but obviously we have an interest and we are giving as much encouragement as we can.

Mr. Gresham Cooke: Can the Minister forecast whether the passenger heating will be turned on in Hovercraft during the summer season as on British Railways?

Mr. Shore: That is another question.

Imperial College (Research Contract)

Mr. Dalyell: asked the Minister of Technology if he will state the terms of the research contract he has recently placed with Imperial College of Science and Technology for the development of a general purpose computer processor.

The Joint Parliamentary Secretary to the Ministry of Technology (Mr. Edmund Dell): The contract is for a general purpose compiler to provide a tool for translating programming languages into the orders which individual computers obey. The contract, which covers a three-year programme, is for £106,500.

Mr. Dalyell: Is this to be a prototype form of contract?

Mr. Dell: It is certainly the sort of contract which we wish to develop with both industry and the universities to develop the computer industry.

Computer-aided Design

Mr. Dalyell: asked the Minister of Technology when he will launch his co-operative scheme involving industry, universities, and Government establishments to develop and apply new techniques of computer-aided design; and whether he will give an estimate of the cost.

Mr. Stainton: asked the Minister of Technology what estimates he has made of the cost of the co-operation scheme involving university, industry and Government establishment to develop and apply the new techniques for computer design; and what estimates he has made of the resulting gain to the nation.

Mr. Dell: The working party which has been preparing the plans in this field is finalising its report. Certain preparatory work is already in progress—for example, that at the National Engineering Laboratory—but I cannot yet forecast when the final scheme will be in operation.

Mr. Dalyell: May we have an assurance that special attention will be given to standardising techniques?

Mr. Dell: Yes, standardising techniques are very much in the forefront of our minds at the moment.

Electronics Industry

Mr. Hastings: asked the Minister of Technology if he will list the areas of the electronics industry where Government action is expected to be urgently required.

Mr. Cousins: One area of the electronics industry under particular consideration is microelectronics. The effective co-ordination and exploitation of research and development is also very important. In this my Department is being assisted by the Technical Advisory Committee on Electronics which includes representatives from industry, the N.R.D.C. and other Government Departments.

Mr. Hastings: Does not the right hon. Gentleman realise that no amount of tinkering with electronic systems and techniques will suffice unless there is a firm policy on projects, both civil and


military? Does he further realise that the main reason why we have fallen so far behind the United States is the firm commitments of the Americans to defence and space technology and our own chronic indecision in these respects?

Mr. Cousins: The Ministry is not suggesting that it will be involved in space, but that it will take up projects which are of aid to the electronics industries.

Telecommunications Industry

Mr. David Price: asked the Minister of Technology what action he has taken, or is proposing to take, to fulfil his responsibilities as the sponsoring Minister for the telecommunications industry.

Mr. Dell: Our objectives are to promote the efficiency and competitiveness of the telecommunications industry. Discussions with the individual firms in the industry are in progress.

Mr. Price: Who is responsible for placing R and D and pre-production contracts? Is it the Post Office, which is the main Government user of the industry, or the hon. Gentleman's Ministry?

Mr. Dell: It is the Post Office.

Mr. Marten: Does this work extend to telecommunications by satellite and, if so, is there a Government programme for telecommunications?

Mr. Dell: That is another question which the hon. Gentleman had better put on the Order Paper.

Oral Answers to Questions — NATIONAL FINANCE

Income Tax (Old People)

Mr. Geoffrey Lloyd: asked the Chancellor of the Exchequer whether he will grant a dispensation, by way of averaging or otherwise, to those aged taxpayers whose total income for 1965–66 is for tax purposes increased beyond the gross figure of £900 by reason solely of the abnormal bunching of dividends to the provisions of the 1965 Finance Act.

The Chief Secretary to the Treasury (Mr. John Diamond): I must ask the hon. Gentleman to await the statement my right hon. Friend will be making later this afternoon.

Mr. Lloyd: Will the right hon. Gentleman bear in mind that he ought to give the small income pensioner the same dispensation which he gives to the Surtax payer under Section 238?

Mr. Diamond: I am sure that my right hon. Friend heard what the right hon. Gentleman had to say.

Government Agencies (Accounting Procedure)

Mr. Fletcher-Cooke: asked the Chancellor of the Exchequer if he will alter the accounting procedure applicable to hospital boards and other Government agencies which at present induces them to spend more money before 31st March in any year than they would otherwise choose to spend.

Mr. Diamond: I have had a study made of this question and am satisfied that there must be surrender of unspent balances to ensure Parliamentary control of expenditure. The system of control of public expenditure includes checks to counteract any tendencies to extravagant spending at the end of the financial year.

Mr. Fletcher-Cooke: Does not the right hon. Gentleman know—and if not, any contractor will tell him—that there is an immense amount of expenditure accelerated between January and March every year in order to get within an accounting system which apparently encourages rather than reduces public expenditure?

Mr. Diamond: The mere fact of acceleration of expenditure by itself does not necessarily give rise to extravagance. The accounts have to be signed, sent in and billed and the goods delivered before expenditure takes place, and most of those activities are outside the control of the spending authority.

Close Companies

Mr. Turton: asked the Chancellor of the Exchequer whether it was with his authority that Professor Kaldor stated to the Economic Research Council that cash earmarked by close companies for expansion will not be taxed under the provisions of the Finance Act, 1965.

The Chancellor of the Exchequer (Mr. James Callaghan): Yes, Sir.

Mr. Turton: I appreciate the tenor of the remarks of his special adviser, but will the Chancellor consider whether this statement should have been made earlier by himself?

Mr. Callaghan: The statement was made on 21st June, 1965, during the debates on the Finance Bill.

Mr. Patrick Jenkin: Would the right hon. Gentleman accept that the statement made by Professor Kaldor in answer to a question by myself at the meeting mentioned represented no change whatever from the doctrines propounded by the Government Front Bench during the Finance Bill debates and sounded every bit as unpalatable when propounded by the professor as by the right hon. Gentleman?

Mr. Callaghan: I am much obliged to the hon. Gentleman for confirming what I said. The only thing which I regret about this is that Professor Kaldor, one of the most distinguished economists we have in this country, was invited to address this learned organisation on the basis of complete confidentiality in the discussions and I very much regret that that was broken.

Roads (Expenditure)

Mr. Edwin Wainwright: asked the Chancellor of the Exchequer what were the amounts spent on roads in 1963, 1964 and 1965, respectively, as percentages of the revenue received from road users by way of fuel tax and licence duty; and what are the estimated figures for 1966.

Mr. Diamond: Taking both central Government and local authority spending on roads, the figures are 41·7 per cent. in 1963–64, 41·1 per cent. in 1964–65, and 41·9 per cent. in 1965–66. I would remind my hon. Friend that expenditure on roads cannot be linked with revenue derived from road users.

Mr. Wainwright: Does my right hon. Friend appreciate that insufficient money is being spent on the roads while road congestion is costing the country more than £300 million a year? If he cannot find the money by the ordinary methods, would he consult his right hon. Friend the Chancellor of the Exchequer about putting a tax on capital wealth so that we can get the money?

Mr. Diamond: I am aware of my hon. Friend's anxiety and I hope that he will not mind my responding by asking hire whether he is aware that road building is planned to increase faster than any other major sector of Government expenditure.

Post-War Credits

Mr. Edwin Wainwright: asked the Chancellor of the Exchequer if he will take the necessary steps to ensure that a married woman, whose husband has qualified for repayment of his post-war credits, shall also be able to receive her post-war credits if she has not been working during the same period upon which her husband's successful claim was based.

Mr. Diamond: I must ask my hon. Friend to await the statement my right hon. Friend will be making later this afternoon.

Mr. Wainwright: Does my right hon. Friend appreciate that for a long time now even the previous Government carried on the ridiculous position by which when the husband was destitute it was considered that the wife also was destitute? I hope that my right hon. Friend will be able to take that into consideration later.

Mr. Diamond: I am sure that my right hon. Friend the Chancellor of the Exchequer has heard my hon. Friend's representations and, of course, I have read the previous correspondence.

Sir Harmar Nicholls: Does the right hon. Gentleman's Answer mean that the Chancellor will deal with this specific subject in his statement later this afternoon?

Mr. Diamond: It means that it is wise at this point of time to make a neutral statement which means absolutely nothing.

Oral Answers to Questions — LOCAL GOVERNMENT

Local Authority Members (Financial Hardships)

Mr. Will Griffiths: asked the Minister of Housing and Local Government whether he is aware of the financial hardships being experienced by many elected members of local authorities;


and whether he will take action to deal with this in advance of the Maud Committee's Report.

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. James MacColl): The Government have promised that the rates of financial loss allowance which are paid to others besides local government members, will be reviewed this year. A decision on this matter is not dependent on the report of the Maud Committee.

Kent Alloys, Strood (Radioactive Isotope)

Mrs. Anne Kerr: asked the Minister of Housing and Local Government if he will make a statement on the radioactive isotope which is missing from the firm of Kent Alloys, Strood, Rochester.

Mr. MacColl: In compliance with a condition of registration under the Radioactive Substances Act, 1960, the firm notified the Department on 20th April of the theft of a radioactive sealed source of cobalt 60. A detailed search of the premises, nearby children's playgrounds and refuse dumps was immediately made by staff from the Radiological Protection Service and the Department's deputy senior radiochemical inspector, but without success. The police are continuing their investigations with the help of the Radiological Protection Service. An earlier theft took place on 25th March.

Mrs. Kerr: While thanking my hon. Friend for his reply, may I stress the very real anxiety felt by the workers in the factory concerned, at Kent Alloys, Strood, Rochester, and felt also by parents living nearby, who are afraid that their children may pick up this object? May I also ask whether his Ministry will see to it that more stringent security measures are taken in the near future to avoid the repetition of such a theft?

Mr. MacColl: My right hon. Friend fully understands the anxiety of my hon. Friend. This is a most disquieting happening but it appears to be a unique case. My right hon. Friend is keeping the matter under review and asking for reports from the police and other authorities, to see whether anything more can be done to improve security arrangements.

Royal Commission on Local Goverment

Mr. Ron Lewis: asked the Minister of Housing and Local Government if, when considering persons to serve on the Royal Comission on Local Government, he will seek to obtain a cross-section of experienced people and others and not fill the Commission with too many academics from the universities.

Mr. MacColl: Yes, Sir.

Oral Answers to Questions — HOUSING

Rents (Lambeth)

Mr. Lipton: asked the Minister of Housing and Local Government how many rents have been determined to date by rent officers in the London Borough of Lambeth; how many have been reduced, unchanged or increased; how many applications are outstanding; and how many references have been made to the Rent Assessment Committee.

Mr. MacColl: Up to and including 30th April, 1966, 122 applications for registration had been determined. Seventy-eight rents were reduced, 15 were unchanged and 29 were increased. Two hundred and forty-nine applications for registration were outstanding and 12 references had been made to a rent assessment committee.

Mr. Lipton: In view of some of the crazy decisions which are being made by rent officers and rent assessment committees, will my hon. Friend see that a very early review is made of all these decisions, which at the moment seem to be completely nullifying the whole object of the 1965 Rent Act?

Mr. MacColl: It is much too early to make any assessment about whether the decisions are going up or down.

Mr. Lubbock: As this information is of the very greatest interest and importance, will the Minister see that it is published regularly in respect of all the local authorities in which rent officers have been appointed?

Mr. MacColl: I should not like to say which particular areas will be covered,


but we certainly intend to give the fullest possible information as soon as it is available.

Flats, Edenbridge

Sir J. Rodgers: asked the Minister of Housing and Local Government if he will take steps to see that the Greater London Council do not introduce urban slab blocks eight storeys high in its development plans for its estate at Edenbridge, thus destroying the rural aspect.

Mr. MacColl: Two eight-storey point blocks of flats are included in a planning application from the Greater London Council which is now before Kent County Council as local planning authority. My right hon. Friend is willing to leave the county council to decide the application.

Sir J. Rodgers: As I understand that the county council has withheld approval of this scheme owing to numerous complaints, will the Minister impress upon the G.L.C. the desirability, when planning its overspill developments, of not ruining the countryside by importing undesirable features of the London scene into rural England?

Mr. MacColl: This is essentially a planning matter which should be left, in the first place, to the planning authority to decide.

Oral Answers to Questions — MINISTRY OF POWER

Coal Production

Mr. Dickens: asked the Minister of Power if he is aware that current manpower and output trends in the coalmining industry will result in the production of 130 million tons of deep-mined coal in 1970–71, compared with a demand of 170 to 180 million tons forecast for that year in the National Plan; and what action he will take to deal with this matter.

The Minister of Power (Mr. Richard Marsh): In consultation with the Chairman of the National Coal Board, I shall be giving close attention to the implications of current manpower and output trends in the coal industry. I have not yet formed a considered judgment about their significance in terms of the demand for coal forecast in the National Plan.

Colliery Closure Programme

Mr. Dickens: asked the Minister of Power, in view of the evidence given to the Select Committee on the Nationalised Industries by the Chairman of the National Coal Board, what consultations he has had and what directions he has given to the National Coal Board on the announcement of the colliery closure programme to 1970 and the implementation of that programme.

Mr. Marsh: My predecessor was in close touch with the Chairman of the National Coal Board on the future of the coal mining industry, including the colliery closure programme. This close consultation, which I shall be continuing, should obviate any need for directions to the National Coal Board.

Mr. William Hamilton: Can my right hon. Friend confirm or deny the allegations in Question No. 38 that the production of coal this year will be 130 million tons? Is he aware that if this is so it represents a very serious situation which needs explaining?

Mr. Marsh: At the moment it is difficult to be able to establish what the final position will be. There are clearly difficulties in the coal mining industry, primarily concerned with manpower, but it is too early to be able to work out what the final implication will be.

Oral Answers to Questions — RHODESIA

Mr. William Hamilton: asked the Prime Minister what estimate he has made of the amount of oil being obtained by Rhodesia from South Africa; and if he will make a statement on his recent talks, with the South African Government on the subject.

The Prime Minister (Mr. Harold Wilson): I would prefer, for the moment, to add nothing to my previous statements, to the House on this subject.

Mr. Hamilton: Can my right hon. Friend say whether these talks are still continuing on this matter? Can he further say whether there is any immediate prospect of containing these supplies or even reducing them?

The Prime Minister: We are still in contact but I think that, in view of the development of last week, it would probably not be helpful if I said too much on this occasion.

Sir C. Osborne: In view of the delicate negotiations now going on, which all hon. Members hope will succeed, and upon which peace or war may depend, could not the Prime Minister appeal to all sides of the House not to ask Questions on this subject?

The Prime Minister: No, Sir. I do not believe in appealing to hon. Members not to ask Questions. How much I say in reply to them is a matter for me.

Oral Answers to Questions — STEEL INDUSTRY

Mr. Edward M. Taylor: asked the Prime Minister whether he will recommend the establishment of a Royal Commission to investigate the structure and organisation of the steel industry before proceeding with plans to bring the industry into public ownership.

The Prime Minister: No, Sir.

Mr. Taylor: Is the Prime Minister's mind quite closed on the issue of steel nationalisation? Has he had an assurance from the Chancellor of the Exchequer that we can afford the many millions of £s required to carry out this pointless and expensive exercise, which will not help the industry or the country, and which people do not want?

The Prime Minister: This was a matter on which Parliament expressed itself a year ago this week. It was also a matter which was before the electorate a month ago and which seems to have received so much acceptance in all parts of the House that the Opposition did not bother to make anything of it in the debate on the Address last week.

Mr. Heath: In view of the undertaking by the First Secretary, which the Prime Minister has mentioned, that he would listen to whatever was said, would the Prime Minister, if he is unwilling to set up a Royal Commission, listen to the conclusions of the Committee under Sir Henry Benson which is now sitting? Will he take these into account before the Government introduce any legisla-

tion? It would be preferable if he did not introduce any legislation at all.

The Prime Minister: My right hon. Friend said that we were willing to listen. That was a year ago. It is impossible to listen to those who do not emit any noises. It is a very significant and interesting fact that activity on this scale has only started after the General Election.

Oral Answers to Questions — PARLIAMENTARY COMMISSIONER

Mr. Whitaker: asked the Prime Minister when he intends to introduce legislation to establish the Parliamentary Commissioner.

The Prime Minister: When the programme of legislation announced in the Gracious Speech permits, Sir.

Mr. Whitaker: Will my right hon. Friend bear in mind that the very real pleasure with which the majority of the country heard his commitment to this Measure two years ago has been followed by equivalent disappointment at its delay?

The Prime Minister: There is no question about a commitment. In the Gracious Speech it was said that we would introduce other Bills when time permits. We cannot yet be certain about the priorities in relation to particular Bills because of the very heavy legislative programme we have.

Mr. Grimond: If there is a delay in the introduction of this Bill, will the Prime Minister bear in mind that many of the complaints are made not against the central Government but against institutions, including local authorities and the nationalised industries? Would he consider introducing in the Bill some measures by which these can be investigated?

The Prime Minister: This was a matter which we considered very carefully. We felt, and this has been explained to the House, that in the first place we should proceed with this new machinery in relation to the central Government. There is, of course, nothing to prevent others, particularly the major local authorities, from setting up their own


machinery for handling these problems instead of having it done centrally on their behalf.

Oral Answers to Questions — ESTIMATES COMMITTEE AND SPECIALIST COMMITTEES

Mr. William Hamilton: asked the Prime Minister whether, in the interest of greater expedition, he will consider as an alternative to the proposed specialist committees, after consultation with the Opposition, the enlarging of the numerical strength of the Estimates Committee and the widening of its terms of reference.

The Prime Minister: As my hon. Friend knows this matter is to be discussed through the usual channels and certainly this variant is not excluded.

Mr. Hamilton: Is my right hon. Friend aware that that Answer gives me, at any rate, a fair amount of satisfaction? Can he say why his objectives, as outlined in his speech last week, could not be achieved by this method, particularly in view of the fact that it would avoid the kind of discussions that he has to undertake with the Opposition?

The Prime Minister: It is right that all possible alternatives should be examined in the discussions which we hope to be having shortly. This is one possibility, but there has been some pressure in the House for separate committees on individual subjects or Departments. Therefore, I think that we should look at all these possibilities, certainly not excluding the idea of widening and strengthening the Estimates Committee.

Mr. Gresham Cooke: Would the Prime Minister consider setting up within the Estimates Committee an economic policy committee through which we could cross-examine the intentions of the Treasury?

The Prime Minister: This is a very bad moment to talk about the intentions of the Treasury when we have not yet heard the Budget statement. But I should have thought that the House has abundant opportunities to debate economic policies, and the view expressed by many hon. Members on both sides of the House is that there are not corresponding facilities in other fields of national and, indeed, international policy.

Oral Answers to Questions — PRIVATE HOMES (RIGHT OF ENTRY)

Sir S. McAdden: asked the Prime Minister whether he will instruct Departments to report to him the number of their officials who have the right of entry into private homes without permission of the occupier; and if he will publish the results.

The Prime Minister: I am making inquiries, and will write to the hon. Member.

Sir S. McAdden: I thank the Prime Minister for that reply. Will he bear in mind that five years ago there were over 10,000 Ministerial officials with these powers, apart from local authorities? Since then, we have had a great deal of inquisitorial legislation and a big increase in the Civil Service. This matter is rather urgent.

The Prime Minister: I am well aware that the hon. Gentleman had a whole series of Questions down on this subject five years ago and collected a great deal of information. I am now doing my best to bring this information up to date for the hon. Member and the House.

Oral Answers to Questions — CHANCELLOR OF THE DUCHY OF LANCASTER

Mr. Mapp: asked the Prime Minister to what extent the special responsibilities for the County Palatine will be covered by the Minister responsible for the Duchy of Lancaster; and if he will make a statement.

The Prime Minister: Exactly the same as with previous Chancellors, Sir.

Mr. Mapp: Is my right hon. Friend aware that there is a little uneasiness in Lancashire in so far as the duties of the Chancellor of the Duchy include magisterial appointments? Would my right hon. Friend agree to a little liaison between the present Minister, who is acceptable to all of us in a general sense, and possibly the Lord Chancellor on this matter?

The Prime Minister: As a fellow Lancashire Member, I am equally well aware of the feeling in the County Palatine on these questions. In recent years some of


the very strong feelings expressed have been assuaged, not least by the machinery established by successive Chancellors of the Duchy over the past five or ten years. But if there is need for improvement or liaison, I know that my right hon. Friend will be prepared to consider it.

Sir R. Cary: Would it not be a good thing if the Chancellor of the Duchy were seen to do more within the frontiers of the Duchy? Thirty years ago, Chancellors of the Duchy used to discharge many public engagements within the Duchy. These matters do not arise in the case of the Lord President of the Council or the Lord Privy Seal. There is a moral obligation on the Chancellor of the Duchy to be seen more within the frontiers of the Duchy.

The Prime Minister: The hon. Gentleman may have missed what was done by my right hon. Friend the Minister without Portfolio, who is very assiduous in attending engagements of all kinds, within the County Palatine. I can remember a very large number of engagements which I attended, not only in my constituency but more widely, where the then Chancellor of the Duchy was doing exactly what the hon. Gentleman has in mind. Whether that was done by his predecessor I do not know, but it was certainly done by the last Chancellor of the Duchy.

Oral Answers to Questions — BRITISH BROADCASTING CORPORATION

Mr. Evelyn King: asked the Prime Minister if he will introduce legislation to appoint a council, analogous to the Press Council, to whom those aggrieved by bad taste, distortion or faulty judgment of the British Broadcasting Corporation may appeal.

The Prime Minister: No, Sir.

Mr. King: Have not the Governors of the B.B.C. on occasion been as much at fault as any newspaper proprietor? Have not many people expressed grievances? Has the Prime Minister himself had a grievance of this nature? Would not he like to lay his sorrow at the feet of an independent council?

The Prime Minister: The Governors of the B.B.C. regulate the affairs of the B.B.C. in accordance with the Charter.

In the debate on broadcasting at the end of the last Parliament, my right hon. Friend the Postmaster-General indicated that the House might like to consider some kind of body, but certainly we have not come to any decision about this. As far as I am concerned, I have no sorrows.

Mr. Boston: Does not my right hon. Friend accept that fairly elaborate machinery already exists, but that if it were necessary to revise this it would be quite wrong to single out one broadcasting organisation and that all, if any, would have to be covered?

The Prime Minister: That was probably in the mind of my right hon. Friend the Postmaster-General, although I think that the House would pay tribute—I am, I believe, entitled to do this because at the time I was critical of the appointment—to the work of the Chairman of the I.T.A. for the way in which he has carried out the letter and spirit of the Act. Although some of us were critical at the time, many of us would feel that some of the grievances which hon. Members on both sides of the House and the country generally felt have been dissipated by the line taken by the I.T.A.

Mr. Bryan: Would the Prime Minister appoint a council to which B.B.C. personnel could appeal when aggrieved by unfair pressures from senior members of the Government?

The Prime Minister: The hon. Gentleman, who I think has been Vice-Chairman of the Conservative Party—I do not know whether he still is—will know something of pressures put on the B.B.C. by the Conservative Party, both when in office and in opposition. I can remember myself, after having had a programme fixed, being vetoed on the demand of the Conservative Party and having an apology from the B.B.C.

Mr. Grimond: Will the Prime Minister think of reviving a suggestion which I think he made that all representations by political parties to the broadcasting authorities should be published?

The Prime Minister: Yes; I think that that would be an extremely good idea. Part of the problem is that political parties—two to my knowledge and possibly three—do make complaints from


time to time, possibly even institute pressures, as parties. I once suggested across the Floor of the House when this this matter was previously raised that it might be a good thing if there were a gentleman's understanding that all complaints made and all grievances raised might be exchanged and, if necessary, published.

Oral Answers to Questions — VIETNAM

Mr. Orme: asked the Prime Minister what representations the United States Government have made to the British Government over the past two months asking for the participation of British forces in Vietnam; and what replies have been sent.

Mr. Frank Allaun: asked the Prime Minister what approaches have been made by the United States Government for any form of British participation in the war in Vietnam.

Mr. Will Griffiths: asked the Prime Minister what requests he has received from the Government of the United States for British military assistance in Vietnam; and what was his reply.

The Prime Minister: I explained our attitude on troops for Vietnam in answer to a Question by my hon. Friend the Member for Barking (Mr. Driberg) on 8th March. The United States Government have not raised the matter with us since then.

Mr. Orme: As a great deal of anxiety still remains in this country about the possible commitment of British troops, would the Prime Minister give an assurance that, if this Government are asked in future, in no circumstances will we make a commitment of British troops to the war in Vietnam?

The Prime Minister: I have said many times in and outside this House and in the United States that we are not sending troops to Vietnam. I have made that very, very clear. If there is any misapprehension, it must be because some hon. Members, on more than one side, keep on perpetuating this myth.

Mr. Allaun: While welcoming that last reply, is it proper that the Prime Minister, who will not send any troops or material to help the American war in Vietnam, is nevertheless prepared to give it his constant support?

The Prime Minister: I thank my hon. Friend for thanking me for the assurance. But, if he has been listening, he will know that I have been giving this assurance for the best part of a year. There was nothing new about it. I think that there is a difference between supporting particular action and involving troops in that action, because, as I said in my reply on 6th March, the Government of the United States fully understand the position of Her Majesty's Government as one of the co-Chairmen of the Geneva Agreement. Because of that, this would, of course, preclude our entering, in a military sense, into that war.

Sir A. V. Harvey: Will the Prime Minister confirm that, in the fortunate event of confrontation between Malaysia and Indonesia coming to an end, the British Government have full freedom of action to do what they like with the troops there and to bring them back if necessary?

The Prime Minister: I missed the last few words of what the hon. Gentleman said.

Sir A. V. Harvey: In the fortunate event of confrontation between Malaysia and Indonesia coming to an end, would the Government retain full freedom of action, if necessary, to bring some of the British troops back?

The Prime Minister: Yes, we retain full freedom of action. This matter is fully dealt with in the Defence Review. The three Questions which I answered related to Vietnam, not Indonesia.

Mr. Doughty: Is the Prime Minister aware that there is a large number of Australian troops in Vietnam and that it is our duty to support the Australians there as they supported us in our military difficulties?

The Prime Minister: Australia, which is a completely sovereign and self-governing country, is entitled to make its own decision in these matters. It does not mean that, because Australia sent troops we, as co-Chairman under the Geneva Agreement, must necessarily follow suit.

Oral Answers to Questions — NUCLEAR TESTS

Mr. Lubbock: asked the Prime Minister if he will make a statement about Her Majesty's Government's


present policy with regard to on-site inspection of seismic events of suspected nuclear origin, in relation to the extension of the nuclear test ban treaty to include underground nuclear explosions.

The Prime Minister: As the Answer is necessarily somewhat long, I will, with permission, circulate it in the OFFICIAL REPORT.

Mr. Lubbock: Can the Prime Minister at least say whether there has been any change in the Government's attitude in view of the vastly improved methods of detection which now exist and have been developed over the last few years?

The Prime Minister: The hon. Gentleman will see that that matter is dealt with in the Answer which I propose to circulate. When I was in Moscow, and my noble Friend was in Moscow shortly afterwards, we pressed on the Russians the idea of scientific exchanges to test some pilot explosions to see who was right about this. I am afraid that so far they have not agreed to joint policing tests of this kind.

Sir Knox Cunningham: Can the Prime Minister say whether it is now possible to identify a nuclear explosion from outside the country of origin?

The Prime Minister: If the hon. Member is referring to a relatively small underground explosion, although it is possible to identify a great number of them because of the improvement in seismic detection, it is not possible finally to say that a particular explosion is of a nuclear character or may be due to natural causes. That is our view. The Soviet Government take a different view. That is why I should like the scientists to get together to argue it out.

Sir W. Robson-Brown: On a point of order, Mr. Speaker. May I draw the attention of the ventilation engineers to the extremely chilly atmosphere that is prevailing throughout the Chamber at this particular time?

Mr. Speaker: I think that the ventilation engineers will note what the hon. Member has said and the undertones behind it.
Following is the information:
The major obstacle to a comprehensive test ban treaty is that although we can detect by seismic means all underground events of importance we cannot be sure in every case whether they are earthquakes or not. Although there

have been recent improvements in seismic detection capability, we cannot foresee any scientific progress that will ever enable us to close this gap.
In recent years the Soviet Government have resolutely refused to agree to on-site inspections as a means of identifying suspected nuclear tests. We are seeking with our allies ways of overcoming this difficulty, and the non-aligned nations at the Eighteen Nation Disarmament Committee have made suggestions which we are examining. We are particularly studying the Swedish suggestion for verification by challenge, and in the proposal for a ban on only those tests above a certain seismic magnitude.

SMALLPOX

Dr. Winstanley: (by Private Notice) asked the Minister of Health if he will make a statement about the twelve cases of smallpox now notified and the action to be taken by members of the public resident in or visiting the areas affected.

The Minister of Health (Mr. Kenneth Robinson): The disease confirmed is variola minor, a mild form of smallpox. In Witton Smallpox Hospital there are one case of variola minor confirmed by virus isolation and four cases diagnosed as variola minor on clinical grounds. Inquiries made suggest that there have been eight other presumed cases. The medical officers of health in the districts concerned—Walsall, West Bromwich, Wolverhampton and Stoke-on-Trent County Boroughs—have offered vaccination to all known contacts and have them under surveillance. Residents in the areas should act on any advice given by their doctors or medical officers of health. Those who have good reason to visit the districts concerned need not refrain from doing so.

Dr. Winstanley: Further to that Answer, does the Minister agree that the widespread use of the emotive term "smallpox" in connection with this outbreak is causing alarm? Would he further agree that this alarm could best be allayed by specific information about what should or should not be done? Will he, therefore, issue a statement to the Press?

Mr. Robinson: I am advised that a general programme of vaccination in the Midlands or elsewhere is not at present indicated. This point was mentioned in a letter sent yesterday by my Chief Medical Officer to all medical officers of health giving them the latest information about this outbreak.

Orders of the Day — WAYS AND MEANS

Considered in Committee.

[Sir ERIC FLETCHER in the Chair]

Orders of the Day — BUDGET STATEMENT

The Chairman: Before I call the Chancellor of the Exchequer, it will be for the convenience of the Committee if I intimate that I propose to follow the precedent set by my predecessor last year. It used to be the practice for the Budget Resolutions to be circulated before the Chancellor had finished speaking. The resulting noise and disturbance often used to disrupt the end of his speech. I have accordingly arranged this year, as last year, that the process of handing round copies of the Resolutions shall not begin until the Chancellor has completed his speech. There will then be a short pause while the copies are being handed round. As soon as I judge that this process has been completed, I shall call the Chancellor of the Exchequer to move the first Resolution. Then we shall follow the usual practice laid down in Standing Order 90. I hope that this will commend itself to the Committee.

3.34 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan): As this is the first time in this Parliament that we have resolved ourselves into a Committee of Ways and Means, I am sure that it would be in accordance with the wishes of the whole Committee for me to congratulate you, Sir Eric, on your appointment as our Chairman. There is little doubt that you will come to know that Chair very well during the long-drawn-out successive stages of succeeding Finance Bills. In passing, let me say that the gentle zephyr of change that you have announced this afternoon will, I trust, reach even further into our financial procedures.
Something was begun on those lines in the last Parliament. We have just received a series of recommendations from the Select Committee on Procedure. I am sure they will agree with me when I say that their recommendations, although useful, were not of an epoch-making or

major character. They have left behind them plenty of material still to quarry before we can say that our financial procedures in the House of Commons are rational or, some of us would claim, even comprehensible. I would very much welcome further examination of these procedures and will be very ready to encourage a rigorous scrutiny of the way we do our financial business.

Orders of the Day — 1. INTRODUCTION

The Government has been returned with a mandate to carry on the process of change and modernisation that began in the last Parliament. Our mandate is to achieve three separate objectives all at the same time. They are a strong pound, a steadily growing industrial strength and full employment.

The Budget is about this Triple Objective, and is a major weapon in its attainment. But despite its importance, the Budget cannot by itself achieve the Triple Objective without the active support of the other policies of government and a positive approach from all sections of the nation.

For example, the attitude of industrial management and workers towards the quiet unobtrusive work of increasing productivity, of getting greater efficiency and of abandoning restrictive practices is certainly more important than the annual Budget Day. The Budget can influence these matters for good or for ill but if the will for greater efficiency is missing from the factories, then the Government's financial measures by themselves will not do the trick.

Or take prices and incomes: the Budget can have a substantial influence on both in the short-term. But when, as at present, there are jobs for all, the Budget's influence can be easily shrugged off by employers who can charge higher prices and workers who can get higher wages. I want to see higher wages as much as the next man; but I must warn the country that the increased output in 1965 was not nearly large enough to justify the big wage increases that were claimed and conceded. Therefore, the Government renews its appeal to the country for support in carrying out the policy of tying together increases in incomes and increases in productivity. We aim to carry this message through


the trade union conferences and employers' confederations right back to the bargaining table where employers and workers sit down together.

I agree with Mr. George Woodcock that the voluntary work done by the T.U.C. during the last year has produced more results than the critics commonly allow. But that voluntary work needs reinforcement by legislation—legislation that would require people to stop and think before wage claims are settled or higher prices fixed. That is not much to pay for the blessings of full employment and steady prices. So the country needs the Prices and Incomes Bill.

I said just now that a strong pound was part of the Triple Objective. A strong pound is no more than a shorthand way of describing a favourable overall balance in our overseas payments.

There is no need for me to say that the efforts of our exporters are at least as significant as Budget Day, although, of course, the Government has a major responsibility to play by keeping overseas expenditure on defence and aid within the limits of our strength.

In the last Parliament, the balance of payments deficit overshadowed all our other policies. It has become a talking point at home and abroad. I welcomed—indeed I encouraged—this discussion because it made people more aware than they were before of the problems we face. But over the next five years, as our policies take effect, I look forward to the time when the achievement of the Triple Objective will enable discussion of the balance of payments to be relegated to its proper place, and enable the country to concentrate on other and different issues.

For the present, I claim that during the last 18 months we reconciled the elements in the Triple Objective to an extent not done before in similar circumstances. The balance of payments deficit was halved; full employment was maintained while actually we raised the level of employment in the regions and in Scotland and Wales; and industrial investment was kept at a high level. Now we can take a longer look at some of our problems, knowing that there is a growing understanding, abroad as well

as at home, and a willingness to see our position in its true perspective. This country has a secure Government for the first time for three years. So political uncertainty has been ended and it is now for the Government, with the co-operation of everyone in the nation, to put an end to economic uncertainty.

The Triple Objective, I repeat, of a strong pound, a steadily growing industrial strength and full employment, is well within the capacity of the British people. It is a great challenge. I do not find the prospect unduly daunting. I shall return to this later.

However, as you will know, Sir Eric, the procedures of the House require me to turn next to more mundane matters of changes in the law relating to existing taxes. Certain Resolutions must be moved at the end of my speech and I therefore now say a word about them.

Orders of the Day — 2. TAX PROVISIONS

I am sure the Committee will prefer me to be brief in expounding the more technical proposals. I therefore do not propose to mention them all this afternoon. My right hon. Friend the Chief Secretary hopes to catch your eye later in the debate, Sir Eric, when he will enlarge upon them.

First, a number of provisions are required to complete the Capital Gains Tax and Corporation Tax legislation, in order to make it fairer both to the taxpayer and to the Revenue.

(a) Capital Gains Tax

I propose a number of relatively minor amendments to the Capital Gains Tax, mostly of a relieving character. I will mention a few of them now.

First, I have decided that advances out of settled property should not give rise to a charge on the whole of the settled property. Next, I propose to amend the rules governing the sale of "rights" on a rights issue. Third, for both Capital Gains Tax and the short-term gains tax, I propose that there shall be no charge to tax when a debtor's assets are transferred to a trustee in bankruptcy.

More important, the provision in the Finance Act, 1965, which limits the rate of tax on capital gains of unit and investment trusts to 30 per cent., raises the


question of the rate payable by life assurance companies. I have decided to bring life assurance companies into line with unit trusts and investment trusts. They will pay tax at 30 per cent. on capital gains reserved for their policy holders.

(b) Corporation Tax

The Finance Bill will contain the detailed provisions about the management and administration of the Corporation Tax.

Among my proposals will be a provision that will remove an unintended restriction upon the overspill which can be claimed by groups of companies. Other amendments will remove anomalies which would have resulted in a loss to the Exchequer.

I propose to introduce certain amendments in the law relating to double taxation which arise out of the introduction of Corporation Tax.

First, I propose to fix 6th April, 1966, as the date for the coming into operation of the provision which withdraws unilateral relief for underlying tax on dividends from portfolio investments in the Commonwealth. I propose also to withdraw as from April, 1968, relief for underlying tax on dividends from portfolio investment in certain Commonwealth countries which use a system of company taxation similar to the one we had before the 1965 Finance Act. This will require a special procedure Resolution.

Second, I shall introduce an amendment made necessary by a change in our double taxation agreement with Switzerland. This amendment will remove an anomaly under which certain interest payments to Swiss residents made before 6th April, 1966, would qualify for what, in substance, would be a double allowance. The Swiss Government have agreed that this anomaly should be removed.

Third, I shall introduce, as I announced some time ago, a provision about dividends paid to residents in countries with which there is an existing double taxation agreement that does not in terms impose any limit on the rate of United Kingdom tax which can be imposed. In these cases the rate of United Kingdom tax will not exceed the rate which the other country could impose on dividends

to United Kingdom shareholders in comparable circumstances.

I have one Surtax proposal arising out of the Corporation Tax. I propose to suspend for the one year 1965–66 the relief from Surtax which can be claimed in certain circumstances where more than one full year's dividends are received from a company in a year. Many companies paid extra dividends last year for tax reasons, and I see no reason to give the recipients Surtax relief as well.

There are difficulties this year about making any reliable estimate of the amount of revenue which a given rate of Corporation Tax would produce. There are a number of transitional reliefs and it is not easy to estimate how these will affect the yield in the current year. But they are expensive. In addition, the Schedule F tax on dividends is payable after the end of each month, so we shall get in the first year, 1966–67, only 11 months' payments into the Exchequer. These factors tend to push up the rate of Corporation Tax required to produce an equivalent yield from companies. I will come to the rate later.

(c) Avoidance

On the matter of avoidance, we took a long step forward last year when the introduction of the Corporation Tax automatically put an end to some forms of avoidance by companies. But others remain, and I am proposing certain amendments to the Corporation Tax this year that fall within the category of anti-avoidance legislation. For example, there is the so-called "Siamese Twins" device. This is a two-fold security made up of an ordinary share plus something which purports to be a debenture. The object of the manoeuvre is to enable the company to get a deduction, in computing its profits for Corporation Tax purposes, for that part of the distribution to the shareholders which has been dressed up as debenture interest. But the whole of the distribution is really a dividend, and I shall propose legislation to treat it as such and so defeat this transparent tax-avoidance device.

I also have two proposals to combat avoidance of Estate Duty. The Ralli case recently established a new means of avoiding Estate Duty on the death of a life tenant of settled property. I propose to close this gap. Secondly, I


propose to stop the exploitation by persons domiciled in this country of the exemption from Estate Duty which is given to certain Government securities when they are beneficially owned by persons not domiciled or ordinarily resident in this country.

(d) Share Options

Next I come to share options granted by companies to their directors or executives.

When a director or employee exercises a share option he is getting something which is worth more than he pays for it, and the difference in value is remuneration which ought to pay Income Tax and Surtax. However, the courts have decided that the liability to tax arose when the option was granted, not when it is exercised, and as a result very little tax can be charged in practice. Hence no doubt the growing popularity of options; and hence my proposal to put their taxation on a proper footing for the future.

I propose that Income Tax and Surtax shall be charged in respect of all options exercised on or after today, irrespective of the date when the option was granted, The charge will be on the difference between the value of the shares at the date the option is exercised and the amount paid for them; but in the case of options granted before today, any increase in the value of the shares which took place before today will be left out of account.

(e) Friendly Societies

I have been reviewing the tax exemptions enjoyed by friendly societies in the light of recent developments, in particular the spate of single premium business. Income Tax exemption was given to friendly societies in very different conditions in the last century because those who banded together in these societies were below the taxable level. It was never meant for the well-to-do investor or those who can put down a relatively large lump sum.

I do not consider that the right way to encourage savings—however important these are, is to allow the unrestricted formation of new organisations which call themselves friendly societies for no other purpose than to get tax exemption

for their clients. I propose, therefore, that societies registered after today shall not be entitled to any tax exemption for life or endowment assurance or general annuity business. There will be exceptions for new branches of established societies and for new collecting societies.

Established societies—that is, societies registered before 1958, when single premium type business started on a small scale—those societies will continue to enjoy exemption for their traditional types of business. The main limitation I propose for such societies is that no tax exemption shall be allowed in respect of future life or endowment assurance business unless the term of the contract is at least ten years and payment of premiums is spread evenly, at annual or shorter intervals, over the whole, or substantially the whole, term.

Societies registered between the beginning of 1958 and today whose business is of the traditional type will continue to get exemption for it; otherwise there will be no exemption for them for future life or endowment or general annuity business.

The limitations I have described will apply to contracts entered into after today; existing contracts will be unaffected.

The friendly society movement have made representations to me to extend their present powers. I agree with them, and I propose that, in addition to the lump sum up to £500 or annuity up to £104 which may be assured on a tax-exempt basis under the present law, the societies shall be empowered to assure further amounts up to £2,000 lump sum or £208 annuity. This additional business will not qualify for tax exemption. I shall be moving a procedure Resolution.

(f) Various reliefs

I now mention a miscellaneous group of proposals, without detail, nearly all of which will require a Resolution.

I propose to remove a grievance felt by traders about certain types of small vans which are used for private purposes, although particular traders may use them solely for trade purposes. At present they do not qualify for initial allowance. I propose to alter the definition so that vehicles of this kind genuinely used for trade purposes will qualify in future.

The Section in last year's Finance Act dealing with covenants permitted the continued allowance of relief from Surtax for payments made under partnership agreements to retired partners or the dependants of deceased partners, and for payments under separation agreements. I think that the conditions laid down are somewhat too restrictive and I shall propose certain easements in the Finance Bill.

(g) Proposals flowing from other legislation

The Bill will contain a number of technical provisions, some of them arising out of other legislation.

The most important is that the new investment grant scheme will involve the abolition of investment allowances: the necessary tax provisions will be included in the Finance Bill.

I shall also move Ways and Means Resolutions to provide for the following—

(i) aiding the creation of new port authorities under the Harbours Act, 1964;
(ii) taxing the increases paid under last year's Pensions (Increase) Act to non-resident pensioners formerly in Indian Government service;
(iii) confirming that the exemption from Income Tax of the first £15 of Post Office Savings Bank interest does not apply to interest on the new investment accounts;
(iv) the tax provisions needed for the pension scheme for members of the Northern Ireland House of Commons;
(v) amending the rules for calculating the relief due to British subjects resident abroad so as to bring it into line with the relief given in certain circumstances on United Kingdom dividends.

These are all useful matters which will be debated at length. I understand that the Opposition do not propose to divide on any of these Resolutions, but it would be proper for me to mention them as they have to be put to the Committee.

(h) Stamp Sellers' Licences

Now an easement on buying postage stamps. The law still contains an antiquated provision that shopkeepers who wish to sell postage stamps must obtain

a licence from the Postmaster-General. That requirement will be abolished in the Bill and all shopkeepers will be able to sell stamps. This requires a procedure Resolution.

(j) Customs and Excise Provisions

(i) E.F.T.A.

The Finance Bill will give effect to an agreement in E.F.T.A. to limit the application of the export rebate scheme so that it will no longer apply to goods which are to be imported into those countries on E.F.T.A. terms.

I also propose, in accordance with our E.F.T.A. obligations, to remove a minor element of discrimination in the duties on certain heavy hydrocarbon oils. It will cost £½ million in the current year and £1 million in a full year. This proposal, together with others in regard to hop oil and hop extracts and vodka, will be set out in the Finance Bill.

(ii) HOVER-VEHICLES AND PIPELINES

Customs controls will be applied to hover-vehicles and pipeline traffic.

(iii) SUGAR SURCHARGE

There will be a provision to help the export trade by widening the scope of the arrangements for the repayment of sugar surcharge on exported beer; also to provide for a product known as "high test molasses" to be relieved from payment of sugar surcharge—this is to facilitate the saving of imports of goods made from such molasses. Again a procedure Resolution will be required.

That is the end of these relatively minor provisions.

(iv) BETTING AND GAMING

My proposals for taxing betting and gaming have been very well received on the whole. I am grateful for the many different points of view that have been put to me; but, having thought them over, it still seems to me that my scheme represents the best way of getting a reasonable revenue yield. I propose to go ahead with the tax.

I believe the majority of those affected will conform to the new legislation, but I warn anyone who is thinking of evasion that the Customs and Excise are not innocents abroad in these matters.


They have certainly broadened my education and will broaden the education of some who think that they may evade taxation. Bookmakers will remember that anyone who may be tempted to evade taxation may lose his licence on conviction.

I believe that we can rely on the co-operation of the bookmaking fraternity. They recognise that this is a moderate tax and one designed to bring in a reasonable amount of revenue. [An HON. MEMBER: "Wishful thinking."] I hope that it is not wishful thinking, because I would not like to see people believing in a foolhardy way that they will be able to escape the consequences of the tax. They will not.

The licence duties on gaming will come into operation on 1st October next and the general betting duty on 24th October. The rates will be as I announced on 1st March. As I have said, I estimate the gain to the Exchequer to be £8 million in the current financial year and £17 million in a full year.

Orders of the Day — 3. SAVINGS

This is the Golden Jubilee Year of the National Savings Movement, and I am confident that it will be celebrated with new records.

The Premium Savings Bonds are doing particularly well. The new National Savings Certificate, which is only a month old, is already a great success. In these first four weeks no less than £58 million of the new certificates have been sold. This is a far bigger sale than in the corresponding period last year or in the comparable period following the previous new issue. Another new facility is almost ready to be launched. The Post Office are almost ready for the new investment accounts in the Post Office Savings Bank, and they will begin business on 20th June.

Another new venture I have decided on is a new issue of National Development Bonds. These will be on sale from 11th July this year, carrying interest at 5½ per cent. The other terms and conditions of the bond will not be altered; in particular, bonds held to maturity will attract a bonus of £2 per cent., tax-free, after five years, and anyone may acquire

up to £2,500 worth of the new issue, if he has the money.

In a field apart from National Savings, this is a convenient place to say that I propose shortly to issue a new Tax Reserve Certificate for companies, with better terms than at present.

Following the sad loss of Mr. Archer, the Chairman of the National Savings Committee for Scotland, last year, Lord Birsay kindly agreed to take up the Chairmanship. I know that under his leadership there and that of Sir Miles Thomas in England and Wales the Savings Movement will make a great success of the Jubilee Year.

Some of the voluntary workers have had a continuous record of service since the first days of 1916 and I know that I speak for the whole Committee in expressing warm thanks to all of them—I have had the privilege of meeting some of them, young and old—who give their time and energies to this national cause. The message is clear: "More savings, less tax".

Orders of the Day — 4. BUDGET ACCOUNTS

(a) Exchequer Outturn 1965–66

The Exchequer outturn for 1965–66 shows that total revenue at £9,145 million produced £119 million more than the Budget estimate, the main increase being on Income Tax because of the rise in income from both trade and employment. Expenditure at £8,456 million was £26 million below the estimate. So the surplus available to finance loans from the Consolidated Fund was £689 million, that is, £145 million larger than I estimated, and the amount the Exchequer required to borrow was reduced to £576 million.

(b) Exchequer Prospects 1966–67

The Exchequer figures for the coming year show that, before allowing for Budget changes, the total revenue which I may expect is £9,838 million. The increase of £693 million over last year arises principally on Inland Revenue.

Total expenditure at £9,177 million shows an increase of £721 million over last year—so revenue up £693 million, expenditure up £721 million. The bulk of the increase is on Supply Services, on which I made a full statement to the House when the Vote on Account was


published on 23rd February. There is also an increase of £124 million in the provision for interest on the National Debt, but nearly two-thirds of this is offset by additional receipts of interest from Consolidated Fund loans.

On the basis of present rates of taxation, and assuming a rate of Corporation Tax which I will come to later, I therefore estimate my surplus at £661 million. This compares with last year's estimated surplus of £544 million and realised surplus of £689 million, so that last year's realised surplus is, therefore, close to this year's estimated surplus.

Loans from the Consolidated Fund were estimated in last week's White Paper at £1,334 million net, of which £764 million is for nationalised and private industry and £398 million is for local authorities. The latter figure compares with £525 million in 1965–66. Despite this reduction in the estimated net issues to local authorities, I take this opportunity to say that I shall adhere to the general principles of the 1963 White Paper on local authorities borrowing.

The borrowing by nationalised industries includes substantial additional sums for investment by the gas and electricity as well as other industries. Despite the weather of the last few days, last winter is still close enough for us to remember that inadequate investment in these industries led to damaging breakdowns in industrial production a few months ago. The performance and efficiency of the nationalised industries is of the utmost importance to the economy; not least to me as Chancellor. For to the extent that they finance their investment from their own resources, they relieve me of the need to lend large sums to them from the Exchequer. If, for example, they were as a group to slip back to the levels of self-financing of five or six years ago, I should have to find another £150 million for them this year.

Against the total amount I require to lend of £1,334 million for these purposes, I have a prospective surplus of £661 million on the basis which I have already mentioned. This would leave £673 million to be met from borrowing by the Exchequer and special financing transactions. This £673 million compares with a figure of £724 million that I estimated I would need to borrow a year

ago, so that it is £51 million on last year's estimate of borrowing, rather different from the actual outturn, as I have explained.

Orders of the Day — 5. ECONOMIC ASSESSMENT

There have been no striking changes in the economic situation since I gave the House a review two months ago. The most recent figures confirm this.

Here we come back to our Triple Objective. How do we complete the restoration of the external balance while at the same time increasing industrial momentum and maintaining full employment? The answer I give is this. We intend to combine a direct attack on the overseas deficit on capital and invisible account with a redeployment of resources at home so as to improve the visible balance. This is the policy we began eighteen months ago. I propose to carry it further today.

To achieve the redeployment of resources it has been necessary over the past year to check the growth of home demand so as to release more resources for the export industries and for import substitution.

The outturn was broadly in accord with the intentions of last year's Budget. There was a dip in the growth of demand in the second quarter of the year following the Budget. Since then output has been growing again and exports have played a leading part in this expansion. Industrial investment has kept up and other forms of investment have been deferred or slowed down in order to relieve the pressure on the economy. But, partly because of the reduction in working hours that has been taking place, the labour shortage has remained more acute than I had expected.

Looking ahead, it is likely that there will be a check to the growth of demand in the next few months. From what I have been reading and seeing, there appears to have been a good deal of buying by consumers in anticipation of tax increases, and this is likely to be followed by a lull after the Budget. In addition, the full effects of the deferment operation of last July have not yet been felt.

But, on present prospects, the rate of increase in home demand is likely to


rise again later in the year. Private consumption may well pick up again. Public current spending at home will be rising in real terms at the reduced rate reflected in this year's Estimates; public investment will rise, too, as the first impact of the deferments wears off and as the nationalised industry programmes are carried through; public housebuilding will be expanding; and private investment should be fairly steady, perhaps with a continuing decline in commercial investment offset by some increase in private housebuilding. At present I foresee little change in private industrial investment this year. Credit is, and will remain, tight. But I shall keep a careful look-out to avoid any damaging effect on the modernisation of industry which credit restraint could have.

The crucial question—and it is not an easy one to answer—is whether these prospects, with all the uncertainties surrounding them, are consistent with the improvement we need in the balance of payments.

It is still our aim to achieve balance by the end of this year. But it is less important that the external accounts should show a balance in one particular quarter or half year than that we should achieve a trend of improvement which will carry us from deficit into surplus in a reasonable period, subject to the inevitable short-run fluctuations. Nor should we pay over-much attention to the many temporary factors which can cause fluctuations in the monthly trade figures and in the quarterly payments figures. In the period ahead, we are bound to experience fluctuations of this kind again. Some of the elements can, within limits, be foreseen—for example, the bunching together of overseas tax and royalty payments by oil companies and the effects of the Rhodesian situation. Other elements, such as the variations in capital movements one way and the other, cannot be foreseen. With all this we need not be too much concerned, since we have adequate reserves and credit facilities from which to meet temporary fluctuations.

The underlying trend is what matters. That is to say we must continue the great progress we made last year in reducing the deficit and aim progressively to eliminate it and move into surplus. In

1966, as last year, we can look forward to a good increase in exports, since world trade should again be rising well. I am glad to say that my right hon. Friend the President of the Board of Trade will have an announcement to make later on about further improvements in E.C.G.D. facilities for exporters. This will help us to get more exports; but they must not be impeded by excessive pressure on resources, nor can we permit demand to be so high that it sucks in imports.

My conclusion is that I must take further action to strengthen the balance of payments both directly and by inducing the redeployment of resources. I have looked first to the capital account.

Orders of the Day — 6. THE MEASURES

(a) External Account

The action I took last year on the capital account has been of major benefit to our balance of payments. Although the new policy was introduced only in April, and in July modifications were made, total private overseas investment was reduced from nearly £400 million in 1964 to about £310 million in 1965, a reduction of about £90 million. At the same time inward investment was somewhat larger: so that on private investment account alone our "deficit"—I use that word with all the qualifications with which it should be hedged around—fell from nearly £250 million in 1964 to under £140 million in 1965—a reduction of £110 million. The 25 per cent. investment currency scheme played a big part: it benefited us by over £70 million in the first year of its operation.

But when we take official transactions into account we still had a deficit on long-term capital account of well over £200 million in 1965. I should, therefore, like to restate my policy quite shortly to the Committee. Whilst we must do all we can to improve our current account position by encouraging exports and holding down the demand for imports, I am not willing to place further drastic restrictions on our home economy just for the purpose of achieving a current surplus so large that it would finance an outflow of capital abroad of any size. I will not create unemployment at home in order to allow capital from this country to pour out overseas. No one should deduce from this that I rejoice at the thought of


severely cutting down overseas investment. On the contrary, much of it brings a substantial long-term benefit to this country, and when we achieve our Triple Objective of a strong £, full employment and a growing industrial strength, then I shall aim to lighten the constraints.

But in our present state of deficit the measures of last year need to be reinforced, and I aim to secure a further reduction in our deficit on capital account.

There are two main features of overseas investment at present. The first is that investment in the sterling area is virtually free, is very substantial, and continues to rise. In 1965, it amounted to nearly £200 million and there is reason to believe that, unchecked, it would go even higher. The second feature is that we maintain very powerful controls on investment in the non-sterling area, all of which, apart from oil investment, which is a special case, is directed through the investment currency market when it is financed from this country.

I have decided, therefore, that some voluntary action is needed to slow down the flow of investment from the United Kingdom to the principal countries of what might be called "the developed sterling area", namely, Australia, New Zealand, South Africa, and the Irish Republic. I am speaking of the next year or two in this connection.

I have decided against the use of compulsory powers because I do not wish to impair the voluntary principle which underlies the concept of the sterling area. We have been in touch with the Governments of the countries concerned, and what I am about to say is with their knowledge. In our exchanges I explained that our overriding objective is the strengthening of the British balance of payments position; that from a longer-term point of view this is in their interests as well as ours; and that the sooner we are able to re-establish a healthy balance of payments by means of the various policies we have adopted, the sooner we shall be able to play our full part in assisting their economic growth—not to mention that of the less developed countries, who are not included in this voluntary action.

As we are not using compulsory powers, we must rely on co-operation by

those companies in this country which are concerned with investment abroad. I wish to put the following Voluntary Programme before them and ask at the same time for their co-operation and support.

First, I ask all companies and firms which have plans for investment in the more developed countries of the sterling area to consider whether they can postpone them for the time being.

Next, I ask them to make every effort to finance projects from local sources of capital rather than from this country.

Third, I invite those companies which desire to proceed, despite the considerations I have just urged, to submit their schemes to the Bank of England, which is opening a separate office to deal with them. They will be examined in consultation with the firms concerned to see whether they promise a quick, substantial, and continuing benefit to the balance of payments. The benefit may take the form of starting up a new and continuing stream of exports, or an exceptionally large and quick return in profits earned and remitted from the investment, or a mixture of both. In any case, the benefit defined in this way should be large enough to equal the cost of the original investment in two to three years——

Hon. Members: Oh.

Mr. Callaghan: I can assure hon. Gentlemen that this is possible, as those who have experience of these matters will know.
If the schemes do not fulfil these criteria, the companies concerned will be invited to withdraw or to postpone them.
The scrutiny by the Bank of England would apply to all types of investment in the countries concerned, portfolio as well as direct, though direct investment has been much the more important in the past. For portfolio investment, the aim would be to ensure that there was no significant increase in total holdings of such securities by any given company or institutional investor over a period of time. This is, of course, not meant to interfere with day-to-day management. And, in order to save unnecessary trouble both for investors and the authorities, I propose to exempt direct investment projects which cost less than £25,000 a year


in any one of the countries covered, whatever their character and purpose.
This Voluntary Programme—I emphasise that that is the kind it is—will work only if it receives the fullest co-operation from everybody. I shall be writing in due course personally to the chairmen of over two hundred of the principal companies in this country which are involved in direct investment abroad, inviting them to co-operate in making the Voluntary Programme a success. The Governor of the Bank of England will be communicating with the representative bodies of the main kinds of institutional investors, calling for the full co-operation of their members. When the need is understood, I am sure we can look for a prompt response.
As regards reinvestment of profits earned abroad, I emphasise the importance of companies remitting funds home to the maximum extent. It would undo the effects of the Voluntary Programme if the reduction in capital flows from this country were offset by companies increasing their overseas investment out of retained profits. This will, of course, fall within the Bank of England's scrutiny.
The Capital Issues Committee will apply to applications for private borrowing by residents of the countries concerned the same criteria as those which the Bank of England will be using in their administration of the main scheme.
Each of the four countries to whom the Voluntary Programme will apply has special problems; for example, in the case of the Irish Republic proximity and history have created exceptionally close financial and economic relations, soon to be strengthened by the entry into force of a Free Trade Area Agreement. Likewise, Australia is the country principally affected by the Programme and I should like to acknowledge in passing the understanding with which it has been received by the Australian authorities, and by New Zealand. I shall continue to keep in touch with all four Governments about the effects of the Programme on them.
For the non-sterling area where, of course, Exchange Control applies, direct investment through the investment currency market will in future be confined to those plans and projects which satisfy the criterion of a quick, substantial, and continuing return to the balance of pay-

ments, to which I have already referred. This will relieve pressure on the market and make it easier for those schemes which fully satisfy the criterion to obtain the necessary investment currency. Direct investments which do not meet the criterion will be allowed only if the funds are borrowed abroad on appropriate terms.
Against this background I have been looking once again at the scale of Government expenditure overseas. This imposes a heavy burden on our balance of payments, and over the last decade it has been allowed to swell out of proportion to our resources. Much of this expenditure is associated with our defence programme—including the costs of stationing forces overseas and of importing some military equipment. The second largest element is our overseas aid programme. As the Committee knows, the decisions contained in the Defence Review will result in substantial savings in Aden and elsewhere.
In addition there are a number of other Government activities—for example, overseas representation, our contribution to the budgets of certain international organisations, military aid, the overseas information services—all of which add significantly to our total foreign exchange costs. The Government have, therefore, put in hand a thorough review of this expenditure in all its forms, with the firm objective of reducing the total.
I now come to the special problem of the heavy expenditure we incur year by year in maintaining our troops in Germany. In the coming year this will be nearly £90 million. Following the negotiations conducted last year by my right hon. Friend the Chief Secretary to the Treasury, the cost will be offset to a considerable extent. The Federal German Government have undertaken to use their best endeavours to increase imports from this country above their normal level, and their efforts have had a degree of success. But there is still a very large gap; and it is more likely to increase than otherwise.
The Defence White Paper announced our policy in relation to the maintenance of our forces in Germany. I quote it again here:
As things now stand, we think it right to maintain our ground forces in Germany at


about their existing level until satisfactory arms control arrangements have been agreed in Europe provided, however, that some means is found for meeting the foreign exchange cost of these forces.
I emphasise the last few words of that quotation: "some means is found for meeting the foreign exchange cost of these forces."
The time has now come to give effect to this policy and we shall propose to the Federal German Government that negotiations be started at an early date with a view to the United Kingdom securing relief from the whole of the foreign exchange cost of keeping our forces in Germany. We shall start these negotiations with the aim of bringing them to a successful conclusion by the autumn of this year.
By these policies that I have outlined we intend to make a total further saving of between £50 million and £100 million a year on the foreign balance: my aim is to get it near the upper end of the bracket. This will be a valuable help on the way to an overall surplus.
In passing, let me say that I have been struck by the extreme pessimism of certain commentators about the prospects of Britain repaying the two I.M.F. drawings. I do not take this gloomy view, and I am even now working on plans for the repayment of the first drawing which is not due to be repaid until November, 1967. In order that the position shall be clear, let me say that I do not intend to ask that this borrowing should be refinanced—or even rescheduled, as the I.M.F. calls it—when November, 1967, comes round. It will be repaid not later than the due date. Indeed, it may be that we shall start the process of repayment ahead of time.

(b) Corporation Tax

Now, Corporation Tax.

I said last year that I was not introducing Corporation Tax as a device for increasing the total burden of company taxation, but rather as a means of redistributing that burden. On that basis it looked as though the equivalent rate would be 35 per cent.; but since then three things have affected the calculation. First, during the passage of last year's Finance Bill, a number of substantial concessions were made as the

result of representations by the interests affected and by the Opposition. These have naturally had the result of increasing the equivalent rate.—[Interruption.] We cannot have our cake and eat it. Second, the investment grant system had not then been brought forward and there is a substantial transitional cost in the next few years after this year. Third, as I have already said, there has been a considerable increase in the dividends paid in 1965–66, which may mean a reduction in dividends and consequently in receipts from Schedule F tax in the present year. All these factors affect the rate.

There is one further important issue that would lessen the yield by many millions of pounds. One of last year's concessions was that a company which paid dividends out of pre-1966–67 income could in certain circumstances get relief for the Schedule F tax which it would otherwise be required to pay over to the Revenue. There are two forms of relief, known as the "one-year surplus" and the "three-year surplus". It has become apparent that in relation to groups of companies these concessions were drawn too generously, and that relief might be due in circumstances for which it was never meant.

When the Act was dealing with the question of forestalling, it proceeded on the basis that dividends paid from subsidiary companies to parent companies represented merely the transfer of income from one pocket to another, and should therefore be excluded from the forestalling provisions. But this conception was not fully applied to the provisions which deal with the computation of the one-year and three-year surplus. If nothing were done, groups would get relief to an extent far greater than their circumstances would justify. For example, under the existing law, a parent company may be entitled to relief under the one-year surplus provisions on the assumption that most of its 1965–66 income, since it consisted of dividends, came from sources which had already borne Income Tax and Profits Tax; the real position being that the subsidiaries which paid the dividends had paid only Corporation Tax on their 1965–66 profits.

I shall introduce provisions to put this matter right. To avoid any charge of retrospection I shall allow the existing


law about the one-year surplus to continue to apply to dividends declared between 6th April, 1966, and today. I shall also introduce certain amendments of the three-year surplus provisions in relation to groups of companies.

The amount of money which is at stake here is very substantial: it is impossible to make precise estimates, but for the one-year surplus alone I put the possible loss at about £85 million, of which £60 million falls into the current year. I am sure the Committee will agree that it is necessary to put this matter right. If we did not do this we should have to raise the equivalent amount of money elsewhere; for example, by having a higher rate of Corporation Tax over the whole of the company sector. I believe it is preferable to recover this money from those who would otherwise gain, rather than impose extra taxes on all the remaining companies.

Taking all these considerations into account, I have decided to fix the Corporation Tax rate at 40 per cent.

Sir Gerald Nabarro: I had conjectured that it would be 42½ per cent. Corporation Tax.

Mr. Callaghan: I believe that if the hon. Gentleman were asked to list the seven deadly virtues he would put modesty at the top of the list.
As from 6th April, 1966, Corporation Tax at 40 per cent. will replace the special 35 per cent. Capital Gains Tax which was charged under last year's Finance Act on the capital gains of companies which had not come within the charge to Corporation Tax in respect of any other source of income.

(c) Taxes

I now turn to other forms of taxation. The direct attack on the foreign balance which I have described eases our problem but cannot be a substitute for an improvement in the balance of visible imports and exports. The improvement we made in 1965 must be sustained until we generate a surplus. It is my judgment that we shall not do this unless we take firm action at home to release more resources for exports and for the substitution of imports.

It is against this background that I have considered what additional taxation

I should propose. At this point I must come back once more to the need to moderate increases in incomes. To some extent the answer to the question—"how much extra taxation?"—lies in the hands of those now preparing and negotiating new wage claims. I do not think enough people yet realise the extent to which they hold the key in their own hands. If increases in incomes are related to productivity and do not outstrip it, my task is made more easy, and taxation needs to be less fierce.

I should add that I have received many representations for relief and have considered them carefully. In other circumstances I should like to meet a number of them, but the Committee will have deduced that this is not a year in which I shall be able to extend reliefs—nor do I think the country expects it.

The question is rather, what form the extra taxation should take in order to achieve our objectives. First, I considered the perennial friends of all Chancellors, beer, tobacco and spirits, but they have suffered heavy increases of duty in two successive years and I think I should leave them to get their breath back on this occasion. So I do not propose any increase there.

The other major revenue raisers are, of course, the Purchase Tax and the Income Tax. The Purchase Tax has been left untouched for some time. A rise in the 25 per cent. rate to 33⅓ per cent. would bring in about £110 million, and I can get nearly another £100 million from increasing the 10 per cent. rate to 15 per cent. Likewise, an increase of 6d. on the standard rate of Income Tax would bring in over £120 million in a full year. These are considerable sums and they are raised with the minimum administrative difficulty by those efficient agencies the Inland Revenue and the Customs and Excise. My judgment is that any two of the three possibilities I have mentioned would be necessary.

Nevertheless, these traditional instruments have substantial disadvantages. They provide no positive incentives to bring about structural changes in the economy; and some of them, if used in present circumstances, might merely depress manufacturing output, check productivity, shatter industry's confidence and halt investment and modernisation.

I therefore put all of them on one side. There will be no increase in the rates of Income Tax, Surtax, Purchase Tax, vehicle licence duty or other Customs and Excise revenue duties.

From the representations that have been made to me I know that these decisions will be a great relief to manufacturing industry and will encourage firms to go ahead with their plans for expansion and modernisation. I shall, of course, renew the usual Regulator powers for use should the occasion arise in either direction, up or down.

(d) Selective Employment Tax

But having stripped myself of this valuable armoury I need a new source of taxation. It must be able to do three things. First, avoid the adverse effects of increases in Purchase Tax and Income Tax. Second, broaden the tax base. Third, make a positive contribution to the long-run structural changes we need in order to achieve a healthy balance of payments.

These requirements have led me to consider the position of services in our tax system. By services I mean the shops which sell goods to the public, and the wholesalers standing behind them; those who provide personal services, like hair-dressers, laundries, garages, dry-cleaners, photography; domestic service; entertainment; banking, insurance and finance; professional services. A review of the tax system shows that virtually all services lie outside the scope of indirect taxation, which is concentrated on goods, notably tobacco, drink, petrol and the manufactures covered by Purchase Tax.

I can put it this way. The value of the manufactured goods subject to Purchase Tax and Excise duties, which consumers at present buy, comes to about £6,000 million a year, excluding the cost of distribution. Out of this sum, tax accounts for about 40 per cent. But the sum which consumers pay for services of various kinds, including the distribution of the goods they buy, but excluding passenger transport, is even larger—about £7,000 million. And out of this sum, indirect tax accounts for less than 1 per cent.

In my view it would be wrong to intensify the rates of taxation in existing fields without making an effort to ensure

that services make a proper contribution. What is needed is to broaden the tax base by creating another source of revenue in a field that has so far contributed a comparatively small amount.

The existing arrangements have tended to shift the pattern of consumer spending in favour of services and hence to produce a similar shift in the pattern of output and employment. With the standard of living at its present level, there is in any event a natural tendency for consumers' spending on services to rise as incomes rise. The result is that in recent years most of the increase in our labour force has gone into services, and there has been relatively little labour for the expansion of manufacturing industry. Beween June, 1960, and June, 1965, employment in manufacturing rose by 142,000. On the other hand, employment in services, distribution, and construction rose by more than 1 million. So only some 10 per cent. of the total increase has gone into manufacturing industry.

Despite some hoarding and waste of manpower, it is still true that the growth of manufacturing output has been seriously impeded by labour shortages; and this has hampered the growth of productivity. If manpower can be saved in the service industries, whether through a slower rate of growth in demand for services or through greater economy of manpower, extra labour might well become available for manufacturing, giving it greater scope for growth. It would be helpful to have a tax system which recognised this.

The fact that our prime problem is to economise in the use of manpower was made clear in the National Plan. In years ahead we face a very slow growth in our total labour force. The growth of output must, therefore, depend primarily on the growth of productivity, which, in turn, means making the most effective use of manpower.

A payroll tax that was universal would not achieve this. Its direct effect on labour costs would be the same as a general rise in the level of wages. What is needed is a differential tax which will increase the cost of labour in services and reduce the cost of labour in manufacturing.

I therefore propose to introduce a system to be called the Selective Employment Tax that will at one and the same


time tax employment in services and construction but lessen the cost of employment in manufacturing. The tax will apply to construction in the same way as services so as to encourage the industry to scrutinise its use of labour more closely; but the effect of the tax will be partially offset to the extent that the construction industry incorporates large quantities of manufactured goods—equivalent to about a third of its total costs. But I do not think I can tax employment in construction without bringing the industry within the scope of the investment grants scheme, thus encouraging it to make use of more up-to-date equipment. My right hon. Friend the President of the Board of Trade will, therefore, be taking the necessary steps at the appropriate time to include the construction industry within the benefits of the investment grants system.

There has been a considerable administrative problem in devising a new system of taxing employment in some sectors and reducing the cost of it in others so that it can be introduced this year, but, thanks to a great deal of effort by all concerned, a scheme has been prepared, using as its basis the existing administrative machinery. The scheme is outlined in a White Paper which will be available to hon. Members in the Vote Office at the end of my speech.

To begin with, I propose that the present system for collecting employers' National Insurance contributions should be used for collecting the new tax from all employers throughout the country both in manufacturing and services. The self-employed will not pay the tax, nor will employees. I repeat, the tax will be paid by employers only.

I use this method for collecting the tax because it is the one most readily available. Although the tax will be collected together with the existing employers' National Insurance contributions, the proceeds of the two will remain entirely separate, and the National Insurance Funds will be entirely unaffected.

The rates of tax will be 25s. a week for men, 12s. 6d. for women and boys, and 8s. for girls. The Committee will notice that the relationship between the rates of tax for different classes of worker will be totally different from National Insurance contributions. They have been

calculated in the light of the relationship between average earnings of men, women, boys and girls.

In order to provide the benefit I seek for manufacturing, I further propose that manufacturing employers should get back more than they pay in tax. This will be done by paying to manufacturing employers what I propose to call premiums. These will be approximately 30 per cent. higher than the tax the employers have borne. In respect of each individual employed by a manufacturer the rate of the premium will be 32s. 6d. a week for men, 16s. 3d. for women and boys, and 10s. 6d. for girls. In other words, the manufacturer will pay 25s. a week tax for men and get back 32s. 6d. Here again we shall use existing machinery; the premiums will be paid through the Ministry of Labour offices.

The financial effects of the tax on Government employment will be neutral since the Exchequer will be both payer and receiver of the tax. For local government, nationalised industry and for transport undertakings generally the cost will be offset, but no more than offset, from the Exchequer. For agriculture, the effect of the tax on the industry will so far as practicabe be offset through the normal machinery of the Annual Review.

To sum up the scheme, employers will pay the tax—but not their employees. The self-employed will be excluded from the tax. Employers who pay the tax are divided into three broad groups: first, those in manufacturing industry who will get the premium; the second group will comprise employers who will get refund of the tax but nothing more—for example, transport undertakings; the third group, of services and construction, will pay the tax but will get no refund.

The tax will be collected throughout the United Kingdom. The Northern Ireland Government has been informed, and has decided to frame its own legislation about refunds to employers.

First payments of the tax will become due to the Ministry of Pensions and National Insurance from 5th September next. Payment of the premiums by the Ministry of Labour will begin in February, 1967, and will cover the period September to end-December, and thereafter the premiums will be paid quarterly.

The yield to the Revenue from the scheme is estimated at £240 million in a full year. This is the net sum that will accrue to the Exchequer after all premiums and refunds have been paid. The gross revenue will, of course, be much bigger. The yield will be higher in this fiscal year, namely, £315 million, mainly because of the interval between the collection of the tax and the payment of premiums and refunds,

The premiums to manufacturing industry will have the effect of ensuring that any rise in the price of services and goods bought by the manufacturing sector which may result from the tax will be more than offset for the average manufacturing establishment.

There will in general be no increase in manufacturing costs. On the contrary, there will be a net gain to manufacturers. There are, therefore, no grounds for a rise in the general price level of manufactures: rather the reverse. It is true that manufacturers, as well as those employers receiving simple refunds, will have to wait for the premiums for which they are eligible. I have not overlooked this, and, against the background of the general credit restraint which it is necessary to maintain, I shall be considering what steps may be needed to enable the banks to respond to temporary needs for credit in such cases.

I have referred to complaints about the wasteful use of manpower in manufacturing industry: many of these complaints are justified. Nevertheless, in present circumstances I think it is more important to encourage the redeployment of labour and to give manufacturers a relative advantage in costs compared with the service sector. The fact that employment in manufacturing, in the public sector, and other parts of the economy, will be relieved of the tax in various ways increases the importance of using labour efficiently in these sectors.

I do not expect the price of services to be increased automatically to the full extent of the tax. But even if this did take place and all changes in costs were passed on, the rise in the price of services would be broadly comparable to a Purchase Tax on services at an average rate of between 3 and 4 per cent. The effect on the cost of living would be well under 1 per cent.

I believe that the Selective Employment Tax is a major step forward. It will prove

in future years to be a very valuable addition to the measures available, first, as a means of raising——

Mr. R. J. Maxwell-Hyslop: On a point of order. Sir Eric, is it in order for somebody in the Box behind the Chancellor to get up and wave a handkerchief as a signal to somebody here?

The Chairman: I did not see anything that was out of order.

Mr. Maxwell-Hyslop: Further to that point of order. It was seen by many Members in the House. It did take place, and is it in order for it to have done so?

The Chairman: That is hypothetical, and I deprecate hon. Members drawing my attention to things which I have not seen. [Interruption.]

Mr. Callaghan: Further to that point of order.

Mr. Maxwell-Hyslop: rose——

The Chairman: The Chancellor of the Exchequer.

Mr. Maxwell-Hyslop: Sir Eric——

The Chairman: Order. I have called the Chancellor of the Exchequer.

Mr. Callaghan: This is a traditional device—[HON. MEMBERS: "No."] I have been in the House for twenty years, and I know that this is a traditional device which is exercised every year with the consent of hon. Members in order to give the Vote Office an opportunity to get the Resolutions down to the hon. Gentleman.

Mr. Maxwell-Hyslop: Further to that point of order. In view of what the Chancellor has said, I take it that it is agreed that this is no longer hypothetical and that it did, in fact, take place.

The Chairman: In any event, it is not out of order.

Mr. Callaghan: The hon. Gentleman has done a good afternoon's work.
As I was saying, it will prove in future years to be a very valuable addition to the measures available, first, as a means of raising revenue, and also as an incentive for labour economies and manpower redeployment. The scheme will produce an easing in home demand this year, will


open the way for a progressive strengthening of manufacturing industry, and will make more resources available for exports with a beneficial effect to our balance of payments.

Sir Douglas Glover: On a point of order. Sir Eric, I thought that before the Chancellor rose you gave instructions that these Resolutions were not to be issued until the right hon. Gentleman finished his speech? This is ruining the Chancellor's wind-up, and I find it very annoying.

The Chairman: I did give such instructions, but something seems to have gone amiss. [Interruption.] I hope that the Committee will remain silent and enable the Chancellor to conclude his speech.

Mr. Callaghan: Given the new character of the tax, it is not possible to calculate the precise effects on demand in the same way as we have been accustomed to do for the traditional taxes. Nevertheless, taking the Budget as a whole, I estimate that so far as the general level of demand is concerned, the effect will be nearly the same as if I had increased the 25 per cent. rate of Purchase Tax to 33⅓ per cent. and also increased the 10 per cent. rate to 15 per cent. As the Comittee will recognise, if I had taken that step in relation to Purchase Tax, or had increased the rate of Income Tax, none of these would have secured the positive benefits of the structural changes in the economy which the Selective Employment Tax should bring.

Orders of the Day — 7. SUMMARY

The measures I have announced will, in total, increase the revenue by £386 million in 1966–67.

Mr. Raymond Gower: rose——

Mr. Callaghan: We shall have five days to debate this.
In 1967–68 the increase will be about £285 million. The estimated surplus for this year on the Exchequer accounts will be increased from £661 million to £1,047 million, and the borrowing requirement will be reduced from £673 million to £287 million.
As far as the balance of payments is concerned, the announcements I have

made today will have a cumulative effect. In a full year I hope the direct action on capital account and on invisibles expenditure will save up to £100 million a year; and adding on the continuing effects of last year's measures we shall save up to £200 million a year. This is, of course, without allowing for the indirect effect of the Selective Employment Tax on our current balance.
Against this total background the Government has been reviewing the temporary import charge, as the present legislation will expire in November next. Taking all the factors into account, including the direct attack we shall be making on the balance of payments, the Government have concluded that we shall be able to do without the import charge from November next. It will accordingly lapse at that time. Until then it will remain at the existing level of 10 per cent.

Orders of the Day — 8. CONCLUSION

Sir Eric, the message of this Budget is clear and unambiguous.

The Government will use all the means at its disposal to ensure that during the next five years the longstanding balance of payments problem will be finally overcome. To do this we are ready to innovate and break new ground in our fiscal policies. We shall not resort to the deadend of purely restrictive and protective policies.

We are at the beginning of a Parliament and whenever a new Parliament is elected a compact is sealed between the people and the House of Commons. One of the unwritten clauses of that compact is that the House of Commons owe the people the truth. So let me be utterly clear.

I have no doubt that during the next five years Britain can secure the Triple Objective of a strong pound, full employment and a steadily growing industrial strength. But there is a limit to what Budgets and fiscal policies can do to achieve the Objective. The battle for success will be won or lost in the factories, workshops and board rooms of this country.

The greatest danger of defeat is that those concerned with increasing output and those concerned with relating productivity to prices and incomes will pay


lip-service to these policies and then do nothing about them. We will get the worst of all worlds if this happens. Many cynics believe that it will continue. But the Government pins its faith to the willingness and understanding of the British people to make the policy of productivity, prices and incomes succeed and so secure our Triple Objective.

BETTING (EXCISE DUTIES)

Motion made

1. That—

(a) a duty of excise of two-and-a-half per cent. of the amount staked be charged on any bet with a bookmaker or by way of pool betting which is not charged with pool betting duty at the higher rate;
(b) pool betting duty at the lower rate cease to be charged;
(c) the appropriate duty at the said rate of two-and-a-half per cent. or at the said higher rate be charged on any intended bet collected by a third person for transmission to the person with or through whom it is intended to be made which is not in fact so transmitted by that third person.—[Mr. Callaghan.]

The CHAIRMAN put the Question there-upon forthwith, pursuant to Standing Order No. 90 (Ways and Means Motions and Resolutions.)

Question agreed to.

The CHAIRMAN then proceeded successively to put forthwith the Question on each further Motion made by a Minister of the Crown, save the last Motion.

GAMING (EXCISE LICENCE DUTIES)

Motion made, and Question,

2. That a duty of excise at a rate varying according to the circumstances be charged on a licence in respect of any premises—

(a) authorising the use of those premises for the purpose of gaming; or
(b) authorising the licensee to cause or permit a gaming machine to be made available for play on those premises.—[Mr. Callaghan.]

put and agreed to.

CUSTOMS AND EXCISE (HOVER VEHICLES AND PIPELINES)

Motion made, and Question,

3. That provision be made for the application of the customs and excise Acts to goods conveyed by hover vehicles or by pipeline.—[Mr. Callaghan.]

put and agreed to.

EXPORT REBATES FOR GOODS CONSIGNED TO CONVENTION AREA

Motion made, and Question,

4. That restrictions may be imposed on rebates under section 7 of the Finance (No. 2) Act 1964 for the purpose of preventing payment of rebate where on the importation of goods into some part of the Convention area as defined in the European Free Trade Association Act 1960 customs duty is paid at a Convention rate of duty as so defined.—[Mr. Callaghan.]

put and agreed to.

SURCHARGES AND REBATES IN RESPECT OF REVENUE DUTIES

Motion made, and Question,

5. That the period after which orders under section 9 of the Finance Act 1961 may not be made or continue in force shall be extended until the end of August 1967.—[Mr. Callaghan.]

put and agreed to.

SELECTIVE EMPLOYMENT TAX

Motion made, and Question,

6. That for each contribution week for which an employer is liable to pay a flat-rate contribution in respect of any person under the National Insurance Acts or under the corresponding enactments in Northern Ireland, a tax to be known as the selective employment tax be imposed on that employer in respect of that person for that week, not being a tax in respect of some but not all persons of the same descriptions relevant for determining the rate of that contribution.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (CHARGE AND RATES FOR 1966–67)

Motion made, and Question,

7. That income tax for the year 1966–67 shall be charged at the standard rate of 8s. 3d. in the pound, and, in the case of an individual whose total income exceeds £2,000, at such higher rates in respect of the excess as Parliament may hereafter determine.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (SURTAX RATES FOR 1965–66)

Motion made, and Question,

8. That income tax for the year 1965–66 shall be charged, in the case of an individual whose total income exceeded £2,000, in respect


of the excess at rates in the pound which respectively exceed the standard rate by the amounts by which the higher rates for the year 1964–65 exceeded the standard rate for that year.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (POST OFFICE SAVINGS BANK INVESTMENT DEPOSITS)

Motion made, and Question,

9. That section 9(1) of the Finance Act 1956 (relief from income tax on certain savings bank interest) be amended so as to exclude from relief under that section sums paid or credited by way of interest on investment deposits with the Post Office savings bank.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (PERSONAL RELIEFS FOR NON-RESIDENTS)

Motion made, and Question,

10. That charges to income tax may be imposed by provisions amending section 227 of the Income Tax Act 1952, and amending provisions extending the relief afforded by that section, where the claimant for the relief is also entitled to relief in respect of double taxation.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (SURTAX UNDER CERTAIN SETTLEMENTS)

Motion made, and Question,

11. That for the year 1965–66 and later years of assessment section 415(1) of the Income Tax Act 1952 shall not apply to certain payments made under partnership agreements, or in respect of the acquisition of the whole or part of a business (being in either case payments made under a liability incurred for full consideration) or to certain income arising under a settlement made by one party to a marriage by way of provision for the other.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (RESTRICTION OF SURTAX RELIEF UNDER S. 238 OF INCOME TAX ACT 1952)

Motion made, and Question,

12. That relief shall not be given under section 238 of the Income Tax Act 1952 (income attributable to a period exceeding a year which is received in a year) in respect of certain dividends and other payments which apart from that section fall to be treated as income of the year 1965–66.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (INDIA, PAKISTAN AND BURMA PENSIONS)

Motion made, and Question,

13. That the exemption from income tax conferred by section 40(1)(a) of the Finance Act 1956 (pensions paid under the authority of the Pensions (India, Pakistan and Burma) Act 1955 to persons not resident in the United Kingdom) shall not apply to so much of any pension as is paid by virtue of the application to the pension of the Pensions (Increase) Act 1965 or of any Act passed after that Act for purposes corresponding to the purposes of the said Act of 1965.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1913.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (DIRECTORS AND EMPLOYEES OF COMPANIES GRANTED RIGHTS TO ACQUIRE SHARES)

Motion made, and Question,

14. That charges to income tax may be made where on or after 3rd May. 1966, there is an exercise, assignment or release of a right to acquire shares in a body corporate granted to a director or employee of that body corporate, or of any right granted by a body corporate in any other circumstances which are referable directly or indirectly to the holding of an office or employment in a body corporate; and that provision so made may impose any incidental charges to corporation tax.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (CASE VII: INSOLVENCY)

Motion made, and Question,

15. That charges to income tax under Case VII of Schedule D may be imposed by provisions relating to bankrupts and other insolvent debtors.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX (MEMBERS OF PARLIAMENT OF NORTHERN IRELAND)

Motion made, and Question,

16. That provision be made—

(a) for charging income tax on any sum which, as representing the value of the accrued pension rights in the Members' Contributory Pension (Northern Ireland) Fund of a former Member of the House of Commons of Northern Ireland, is paid out of that Fund into or for the purposes of any other fund or scheme; and
(b) for reducing the amount of relief from income tax under Part III of the Finance Act, 1956 (retirement and other annuities) in


respect of qualifying premiums paid by a Member of the House of Commons of Northern Ireland who is also Chairman of Ways and Means of that House or Attorney-General for Northern Ireland.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX, CORPORATION TAX AND PROFITS TAX (ALLOWANCES IN RESPECT OF CAPITAL EXPENDITURE)

Motion made, and Question,

17. That, for the purposes of income tax, corporation tax and protfis tax, provision be made—

(a) for abolishing investment allowances in respect of expenditure where the date on which the expenditure was incurred, determined in accordance with section 330(2) of the Income Tax Act, 1952, is after 16th January, 1966;
(b) for withholding or withdrawing investment allowances and initial allowances (including such allowances for past years of assessment, chargeable periods or chargeable accounting periods) in respect of so much of any expenditure as is taken into account for the purposes of any relevant grant made towards that expenditure;
(c) for abolishing the method prescribed by sections 38 and 39 of the Finance Act, 1963, for computing writing-down allowances for new machinery or plant and ining expenditure in development districts and in Northern Ireland.

In this Resolution "relevant grant" means a grant towards capital expenditure incurred by a person carrying on a business, being—

(i) a grant made under an Act of the present Session or in pursuance of a scheme under an enactment amended by an Act of the present Session; or
(ii) a grant made under an Act of the Parliament of Northern Ireland or out of moneys provided by that Parliament which appears to the Treasury to be made towards expenditure and for a purpose corresponding respectively to expenditure towards which and a purpose for which a grant such as is mentioned in paragraph (i) of this definition may be made,

and in either case being a grant declared by the Treasury by an order made by statutory instrument to be relevant for the purposes of the withholding or withdrawal of investment and initial allowances.—[Mr. Callaghan.]

put and agreed to.

CORPORATION TAX (RATE FOR FINANCIAL YEARS 1964 AND 1965)

Motion made, and Question,

18. That for the financial years 1964 and 1965 the rate at which corporation tax is charged shall be forty per cent.—[Mr. Callaghan.]

put and agreed to.

CORPORATION TAX, INCOME TAX AND CAPITAL GAINS TAX (AMENDMENTS OF CORPORATION TAX ACTS)

Motion made, and Question,

19. That charges to corporation tax, income tax and capital gains tax may be imposed by amendments of the Corporation Tax Acts, taking effect from the time when those Acts take effect, and relating to—

(a) the apportionment for surtax of the income of close companies,
(b) section 85 of the Finance Act 1965 (companies paying dividends out of pre-1966–67 profits),
(c) annuity business of assurance companies,
(d) the definition of company distributions,
(e) capital gains.—[Mr. Callaghan.]

put and agreed to.

CORPORATION TAX, INCOME TAX AND PROFITS TAX (MANAGEMENT AND ADMINISTRATION OF CORPORATION TAX ACTS).

Motion made, and Question,

20. That in connection with the management and administration of the Corporation Tax Acts charges may be imposed to corporation tax, income tax and to the profits tax, including tax for past years of assessment or accounting periods, in consequence of provisions concerning the time when tax becomes due, the persons on whom and the time within which assessments to tax may be made, interest on tax. income of a close company which is sub-apportioned to participators of another company, the recovery of any relief (including relief payable out of money provided by Parliament) which is, or has become, excessive. and in consequence of other administrative provisions.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX AND CORPORATION TAX (CANCELLATION OF TAX ADVANTAGES FROM TRANSACTIONS IN SECURITIES).

Motion made, and Question,

21. That charges to income tax and corporation tax may be imposed by provisions which extend the operation in relation to past and future transactions in securities of section 28 of the Finance Act 1960—

(a) by provisions relating to income tax chargeable under Schedule F in respect of company distributions, including provisions which, in relation to that tax, modify the definition of tax advantage and alter the circumstances in which the section applies, and provisions for determining the person to be made liable by adjustments to counteract any such tax advantage,
(b) by prescribing the circumstances in which company profits are to be regarded


as having been distributed if there is or has been a company reconstruction or amalgamation, or a transfer of assets from one company to another.
(c) by modifying the provisions of that section as to the persons on whom notices are to be served for the purposes of that section.—[Mr. Callaghan.]

put and agreed to.

INCOME TAX AND CORPORATION TAX (DOUBLE TAXATION RELIEF)

Motion made, and Question,

22. That charges to income tax and corporation tax, including corporation tax for the financial years 1964 and 1965, may be imposed by provisions relating to the enactments affording relief in respect of taxation in territories outside the United Kingdom.—[Mr. Callaghan.]

put and agreed to

CORPORATION TAX AND INCOME TAX (FRIENDLY SOCIETIES)

Motion made, and Question,

23. That charges to corporation tax and income tax may be imposed by provisions modifying the exemption from tax conferred on friendly societies by Section 440(1) of the Income Tax Act 1952 as applied, and extended to tax on chargeable gains, by the Corporation Tax Acts, and by other provisions relating to assurance business carried on by friendly societies.—[Mr. Callaghan.]

put and agreed to.

CORPORATION TAX AND INCOME TAX (HARBOUR REORGANISATION SCHEMES)

Motion made, and Question,

24. That charges to corporation tax, income tax and profits tax may be imposed by provisions relating to harbour reorganisation schemes, including charges to corporation tax for the financial years 1964 and 1965 and charges to income tax for past years of assessment.—[Mr. Callaghan.]

put and agreed to.

CHARGEABLE GAINS (MISCELLANEOUS PROVISIONS)

Motion made, and Question,

25. That charges to capital gains tax and corporation tax may be imposed by amendments of the enactments relating to chargeable gains, being amendments relating to settled property, rights to acquire shares or debentures, assets held on 6th April, 1965, transactions or events which are, or are not, to be treated as part disposals of assets, and

bankrupts and other insolvent debtors, including charges to tax for the year 1965–66 and the financial year 1965.—[Mr. Callaghan.]

put and agreed to.

CAPITAL GAINS TAX (CONSEQUENTIAL CHARGES)

Motion made, and Question,

26. That charges to capital gains tax may be imposed by any provisions amending the Income Tax Acts for any year of assessment, including a past year of assessment, so as in any case to increase the rate of capital gains tax chargeable under section 21 of the Finance Act 1965.—[Mr. Callaghan.]

put and agreed to.

ESTATE DUTY (INTERESTS LIMITED TO CEASE ON A DEATH ETC.)

Motion made, and Question,

27. That charges to estate duty on deaths after 3rd May, 1966, may be imposed by provisions relating to interests limited to cease on death and other property.—[Mr. Callaghan.]

put and agreed to.

ESTATE DUTY (GOVERNMENT SECURITIES)

Motion made, and Question,

28. That provision may be made for and in connection with cases where the property which for purposes of estate duty passes or is deemed to pass on the death after 3rd May 1966 of a person domiciled or ordinarily resident in the United Kingdom, or the property otherwise taken into account in determining the amount of estate duty leviable on such a death, includes securities which the Treasury issue or have issued subject to any condition authorised by section 47 of the Finance (No. 2) Act 1915 or section 22 of the Finance (No. 2) Act 1931 for an exemption from taxation so long as the securities are in the beneficial ownership of persons neither domiciled nor ordinarily resident in the United Kingdom.—[Mr. Callaghan.]

put and agreed to.

RELIEF FROM TAX (INCIDENTAL AND CONSEQUENTIAL CHARGES)

Motion made, and Question,

29. That it is expedient to authorise any incidental or consequential charges to any duty or tax (including charges having retrospective effect) which may arise from provisions designed in general to afford relief from taxation.—[Mr. Callaghan.]

put and agreed to.

AMENDMENT OF THE LAW

Motion made, and Question proposed,

30. That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision


in connection with finance, so however, that this Resolution shall not extend to making—

(a) amendments of the enactments relating to purchase tax so as to give relief from tax, other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies;
(b) amendments of the provisions of the Finance (No. 2) Act 1964 relating to temporary charges on imports so as to give relief from the duty imposed by those provisions, other than amendments making the same provision for all goods chargeable with that duly.—[Mr. Callaghan.]

5.4 p.m.

Mr. Edward Heath: Undoubtedly one of the most pleasant and agreeable tasks which fall to the Leader of the Opposition is the opportunity of being the, first to congratulate the Chancellor on his Budget Statement. However ardent we may be in the cause of Parliamentary reform, I hope that nobody will ever alter this very acceptable tradition. Today I can congratulate the Chancellor on the way in which he has delivered his statement, and I congratulate him from this side of the Committee with great sincerity.
He has delivered his statement with immense lucidity and also with a considerable degree of brevity compared with some of those to which we have listened in the past. For both those things we thank him and congratulate him. He has also shown great courtesy to the Committee in the detail with which he explained some of his proposals and the fact that he immediately laid a White Paper on probably the most novel, proposal he put before us today. That we also appreciate. I should like, of course, without committing myself to the contents of his speech—the Prime Minister was always very careful about that when speaking from my place—nevertheless to offer the thanks of the Committee for the way in which he made the statement.
He has demonstrated his antipathy towards Siamese twins in a form that has probably not come to the notice of many of us before. Whether the Budget will be known as the "Siamese Twins Budget" or the "White Handkerchief Budget" remains to be seen. On that the Press will judge. In the early days the signalling was done by a Whip sitting on the Front Bench. Perhaps a return to that tradition might avoid the embarrass

ment we have had today. In commenting on the speech, may I also express our warm welcome to the First Secretary of State and Secretary of State for Economic Affairs on his return in good health to the Front Bench? Let us say quite frankly that when he is absent from the Front Bench something is missing.
I propose this afternoon only to make a few brief remarks about the statement to which we have just listened. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) will be speaking tomorrow and commenting upon it in more detail. I was greatly interested in the Triple Objective of the Chancellor to which he gave a great deal of emphasis. He repeated this several times—a strong pound, a movement towards industrial strength, and full employment. It is noticeable that he missed out from his objective the maintenance of stable prices. This presumably was a quite deliberate decision by the Chancellor of the Exchequer. It is a very interesting and important decision to choose those three objectives rather than the objective of the maintenance of stable prices. Looking at his statement as a whole, my first reaction today is that he proposes to achieve these objectives, first, by restraint overseas, albeit as he indicated, voluntary restraint at the moment in the sterling area; secondly, by putting additional burdens on industry, both manufacturing and distributive, at home; and thirdly, by relying on action from all citizens through the prices and incomes policy.
Those seem to be the three ways in which he is trying to achieve his objectives. The question is whether these methods can be successful and whether they are the right methods to be using. We were grateful to him for explaining the proposals of a minor kind which he is putting forward. I was very interested when he used the phrase that he was going to complete the Capital Gains Tax and Corporation Tax. It is obvious from what he said that he proposes to issue a yet further batch of Amendments to the Bill we considered at this time last year. No doubt the Prime Minister will say, "More tomfoolery".
There were other minor things which we welcome. Of course, we welcome any proposals to try to increase National Savings. We were delighted to hear that


the last issue is being successful, and further steps forward are welcome. Compared with the Chancellor's problem, they are comparatively small. There is one which arises from them, on which perhaps the Chief Secretary will be able to comment later, and that is that the more successful these new certificates and developments are the more difficult it will be for the building societies to resist raising their rates for investment for savings themselves. Therefore, this will have an effect on mortgages and on the financial consequences of the Government's Bill. It may be that the Chief Secretary can help the Committee on that.
Perhaps the Chancellor's speech was comparatively short because he gave very little by way of an economic assessment. He perhaps left the Committee to rely on the papers which have already been published. I should be rather inclined to doubt the belief that there is now going to be a check in demand, for the reason that I see very little check in the degree of wage increases being granted. This means that the pressure of demand, so far as I can see, is likely to remain very heavy and will be working against the Chancellor's other purposes. I noticed that, from the point of view of achieving the balance of payments, when he was dealing with the economic assessment he said that his objective is to see that there is a trend towards improvement. This is a very considerable movement away from his first objective, which was to have complete balance in 1966. His second objective was to be at a rate of balance by the end of 1966, and the objective now appears to be that there should be a trend towards a balance in 1966. It remains to be seen how successful this is in the view of the Government's creditors and of opinion overseas.
The Chancellor concluded that it was necessary to take further action to strengthen the balance of payments. He made the very interesting and important point that he was not prepared to have unemployment at home in order to have investment or expenditure overseas. He promptly went on to say that the demand on home resources is too great and must be reduced. He therefore wants to reduce demand at home which runs the risk of unemployment unless there are countervailing exports and sales over-

seas. Could we not abandon this automatic reflex action, that if any proposal is made for dealing with demand at home automatically people are in favour of large-scale unemployment? It just is not true. On the other hand, it puts us entirely in a straitjacket from the point of view of developing economic policy if we produce an automatic reflex action that any proposal means unemployment at home and is unacceptable. Certainly there must be unemployment which arises in a transitional way, as the Minister of Labour said in his speech on the Address.
We come to the action which the Chancellor of the Exchequer proposes so far as the sterling area is concerned. What he is really saying is that he is prepared to tolerate stagnation at home and, as a result of it, to reduce investment overseas. He is hoping to reduce investment in the sterling area considerably. In fact, as I understand it, he is making the conditions and terms of investment in the sterling area the same as they are at the moment outside the sterling area, but by voluntary means. This means that the sterling area will have no preference over the rest of the world. Is not this an important step to take? Is it not going to raise in the minds of other countries the question, "What is the purpose of belonging to the sterling area if there is no preference to be gained by countries overseas?"
I put these questions in an interrogatory form because they are important and should be considered. Has the right hon. Gentleman had assurances about sterling balances which are kept in this country, on the present form of the sterling area? Obviously, all this has to be taken into the balance of a voluntary action which is a major step for the Chancellor to take. The developing countries have already been affected by the action that we took in the last Budget and, as he knows, investment in countries overseas has fallen to a low level; this includes Commonwealth countries as well as other countries overseas. Now we are withdrawing from overseas because we have stagnation at home, and that is the plain fact of the matter.
I welcome the Chancellor's announcement that he will pay back on half of the I.M.F. loans falling due in 1967. In his speech on 7th March in the House,


he put in the qualifying parenthesis that they would be repaid providing no other arrangements were made.

Mr. Callaghan: On the second one.

Mr. Heath: On the second one. That still stands. We accept the Chancellor's assurance. The first one will be repaid, and obviously if he manages to reduce the reserves and if he has built up the balance of payments sufficiently that can be done. But let us realise what that would mean to the reserves even with the liquified investments in the United States being moved any further.
Now I should like to comment on the rate of Corporation Tax. This brings back many memories. How many times did we say last year during those long debates on the Finance Bill, "Of course, it is going to be 40 per cent." How indignant the Chief Secretary and the Financial Secretary became. The thought was never in their minds—banish it. Every argument was based upon a figure of 35 per cent. "Take £100", said the Chief Secretary, "we deduct £35 for Corporation Tax". Now that the rate is fixed we find that 40 per cent. is slapped down and some of the omissions or, as the Chancellor told us, some of the holes are blocked, and the burden becomes greater.
What is the effect of this going to be? It will react on the investment of companies. The Chief Secretary will say that it will cut down dividends, and companies should deliberately reduce their dividends. But is that going to happen? No. It will affect the investment of companies because they will have to pay much more than they have done under the present rates of taxation to the Government. This is the first blow of the Chancellor's on investment by companies in this country. Let him try later to explain how this will not happen. If he is working on the basis that dividends will not be reduced and investment maintained, I do not believe that is a justifiable argument.
The second action which will affect so many companies is the Selective Employment Tax. Obviously, we shall have to study the White Paper in great detail. I believe that on the Finance Bill this will require a considerable amount of discussion. May I say to the Chancellor

that one of the best ways of furthering Parliamentary reform would be to give the Committee time to discuss the Finance Bill properly and thoroughly during normal hours. This means that the Leader of the House and the Chief Whip will have to be prepared to provide the time. Then the Committee can really get down to this business in detail and feel that it is tackling the problem properly and not hastily with its views being cut short because of the action of the Government. I hope the Chancellor will bear that matter in mind.
I can only give preliminary reactions to the Selective Employment Tax. My first reaction is to consider how interesting the effect would have been on the electorate if the Chancellor had announced this in his "mini Budget" speech, as he did in connection with gambling, instead of keeping it till after the election. He will put a considerable burden on the distributive industries and services. What is the purpose?—to make them economise in manpower. What is the method of making them economise in manpower?—to give them investment allowances so that they can use equipment which will economise in manpower. This was specifically excluded by the Chancellor of the Exchequer and by the Board of Trade. When the Chancellor calls for wholehearted support from other Government Departments, the Treasury might look at their own policies as a whole before producing contradictory policies like this. To say to the service industries, "You must not have incentives to improve the use of manpower. We are going to tax you if you improve it." will have a bad effect on the service industries. This is an additional burden which will be placed upon them.
The Chancellor has apparently learned the lesson with the construction industries. He is now bringing them into the scheme. I cannot see a satisfactory dividing line between a service industry being given investment allowances to encourage it to economise in the use of manpower and giving them to the construction and manufacturing industries. This seems to me to be a contradictory approach to the problem. This will not be contained by the service industries themselves, especially without inducements to use better equipment. So it will go on the cost of living in the same way as the


increase in the Purchase Tax. The Chancellor said that he wanted to avoid this. What is the difference? The difference is that this will fall on food, clothing and all those items which are at present exempt from Purchase Tax. All those forms of manufacture have distribution services, and the cost will therefore fall on the food and clothing because of this poll tax on the distribution services.
What the Chancellor is really doing is extending the whole range of Purchase Tax, albeit at 3 per cent. to 4 per cent., over the whole field of consumer purchases, including food and clothing, to which right hon. and hon. Gentlemen opposite have always been bitterly opposed. I have no doubt that the co-operative societies will speedily bring this to his attention, and quite rightly, too.
What will be the effect on manufacturing industry? This I fail to comprehend. If the Chancellor of the Exchequer had said that manufacturing industry is going to be exempt I would have understood. The more people the industry employs the more money it will get. How is this an inducement to economise in manpower? I feel there must have been a sophisticated form of thinking by the Chancellor which needs further explanation, to say the least. At first hearing, it is difficult to see how the Chancellor's main purpose of getting industry to economise in manpower is achieved by paying it something for every man it employs. I put it as simply as that. I would have thought that the hon. Member opposite, with his technical background, would have been able to keep the Chancellor straight. It is quite obvious that the capital investment industries of his own North-East will now benefit if they employ more men, because they are to be paid by the Treasury to do so.
At first sight, this seems to be a somewhat difficult proposition to deal with, and, of course, there are further effects. There is the effect on the tourist trade. Will it be beneficial to our balance of payments if those engaged in the tourist trade have to carry this additional burden? Moreover, it will affect some of the most outlying parts of the United Kingdom. Eighty per cent. of activities in the Highlands of Scotland are concerned with services, so that the regional

policy which the First Secretary of State and the Secretary of State for Scotland are trying to carry forward will be affected directly by this new tax. It will affect those areas which rely on tourism and on services in particular. Once again, therefore, there is a contradiction within the Government's policies. Are these not sufficient reasons for saying that we shall have to think very carefully about this proposal and examine it in great detail, not only at this stage but when the Chancellor comes forward with his Finance Bill?
I welcome the Chancellor's statement that the surcharge is to disappear in November. This is immensely important. It is immensely important from the point of view of the protective attitude in industry and in our relations with the G.A.T.T. I was rather surprised that the Chancellor did not develop any further today his hint during the election campaign that he wished to reform the G.A.T.T. The removal of the surcharge is very important for any discussions which are carried on with the European countries, including, of course, the E.F.T.A., and we welcome the announcement that it is to go, but this does not alter the fact that, as it had to be announced today, presumably, in view of the E.F.T.A. meeting, there may very well be a very large build-up of goods held back until after the date on which the surcharge is to be removed. However, the right hon. Gentleman has, presumably, taken that into account and is prepared to accept it.
I come now to the Chancellor's reliance on the prices and incomes policy, which he is still banking on a very great deal. He said so at the beginning and repeated it in his peroration. One is entitled to ask whether the past history of the prices and incomes policy justifies his relying to this degree upon it as a weapon of economic policy. It is the Government's job to carry it through. The Prime Minister has now intervened and taken direct responsibility for it in the meetings he is addressing up and down the country. He has done this now. Hitherto, it has been the First Secretary of State.

The Prime Minister (Mr. Harold Wilson): No.

Mr. Heath: With respect, the Prime Minister has now announced that he intends to do a crusade. It has gone


from the First Secretary's circus to the Prime Minister's crusade. This means that the Prime Minister will give it that particular spiritual quality which is so characteristic of him. The family doctor leads a crusade—a political crusade with our backs to the wall, in the Dunkirk spirit.
The Government must show that the action which the Prime Minister is now taking through his speeches in the country can produce a major weapon in the prices and incomes policy, but all one can say on the figures at the moment is that though more successful with prices than with incomes, it cannot be said to be working successfully with incomes, and this is going the way of producing additional problems for the Chancellor. As prices have been held down but wages have not, demand itself is far greater than the Chancellor wants to see. He said himself that it has been an acute problem for him, and I believe that it is likely to remain so.
Those are the important points on the Chancellor's statement which I make at this stage. How can one sum this Budget up? One can say that the balance of trade situation appears to be less favourable in the first quarter of this year than in the first quarter of last year and, therefore, the Chancellor's problems have now become greater. He is proposing to put very heavy taxation on to industry and services, almost the whole of our economic life, in fact. They will be very great burdens indeed. The additional rate of Corporation Tax and the Selective Employment Tax ensure this.
The Chancellor is not putting the burden directly on the consumer, and I cannot help feeling that it was his own speech before the election and the attitude taken by the Government during the election campaign which led to this point of view. The Government did not want to be accused of having taken a line which would lead the electors, the consumers, then to say, "This was not what you said at the election". By putting the burden on industry, in its widest form, the Government hope that the electors, the consumers, will not notice it. But, of course, they will notice it indirectly, and very quickly after these taxes come into operation.
Once again, there are minor incentives to savings, but there are no real incentives

to industry or to individuals to produce the enterprise which can really deal with our problems. The Chancellor is quite right when he says that the Budget is only one part of the economic approach. We expressed our view on these matters during the debate on the Address. We believe that the Government are lacking here. We do not believe that the Budget statement today will produce that enterprise and incentive which can meet our problems by expansion rather than by withdrawal overseas, and those will be our criticisms of the Budget statement which the right hon. Gentleman has addressed to us today.

5.25 p.m.

Mr. W. R. Rees-Davies: I take this early opportunity to direct attention to one or two matters within the broad horizon which the Chancellor pictured today, and I do so with some humility because this is an early stage to speak without having had several days to mull over the Chancellor's proposals. I ask the House to consider the effect of the proposed poll tax on certain industries and services, and I am glad to have the Chancellor's attention on the Front Bench now because I want him to give careful thought to these matters.
The tourist trade is rapidly becoming one of our most successful exporters. It is the greatest invisible export earner that we now have. The hotel expansion which has recently taken place in this country is a prerequisite of successful tourism. I hope that I may have the right hon. Gentleman's attention on this point. I realise that there are, probably, many attractions for him after his very able effort this afternoon in presenting his Budget with great clarity, on which I, too, congratulate him, but I wish to direct his attention specifically to certain problems.
In excluding the hotel and tourist trade entirely from any possibility of refund—it is quite clear that this is his intention—did the Chancellor fully appreciate that no less than 25 per cent. of the whole of the gross costs of hotels and catering businesses are borne upon their wages? The Selective Employment Tax, so far as it affects the tourist trade and, more particularly, hotels and guest houses, will be a direct tax upon 25 per cent. of their gross costs. In effect, by


imposing a tax of this kind, the Chancellor will put a direct tax upon the hotel and catering trade in itself.
It may be that there is a case for doing this. It may be said that there ought to be, as there is in France, some sort of luxury tax upon the special hotels. This has existed in other countries. But it is totally unrealistic to argue that, by application of a poll tax of this kind, one is not putting a direct impost upon the whole hotel and boarding house trade which, next year, must immediately entail a substantial rise in the cost of holidays for everyone in this country.
I am raising this matter now because I take it that the First Secretary of State will be deploying the more detailed arguments which arise on the effect of this tax in its various aspects, and I want the right hon. Gentleman to be good enough to pay attention tomorrow to the serious effects which it will have on the hotel industry.
First, there is the whole question of the development of hotels in this country. At present, the hotels of London are full and we need more hotels. The demand is such that the British Travel Association—I speak as one who, for some years, has been an officer of an all-party committee in this House which deals with tourism—is concerned with the expansion of hotel provision. We need more provincial hotels. We need good hotels in the Midlands, in Birmingham, in Manchester. We need to modernise our hotels throughout our tourist centres and resorts. Not only has the Chancellor turned a stony heart to investment allowances—investment grants are "out" for the catering industry—but just when we want to expand tourism, he has imposed a substantial tax on 25 per cent. of their gross profits—the wages element in the average hotel.
It is no good saying that this will not affect the cost of living. Consider the effect on all the camps and tourist places to which people go for their holidays. Consider the situation for those who operate camps, such as Butlins, Warners or Pontins. In a camp of 8,000 people, they require 1,500 employees to provide the service. That is a ratio of nearly 20 per cent. serving those who are on holiday. This means a very substantial tax of 25s. a week on, say, 1,000 men

and 12s. 6d. a week on, say, 500 women. These are large figures. It will not be long before the trade unions say, "It is no good giving us two or three weeks holiday without taking into consideration the increased costs which we shall have to pay".
The tax is allegedly selective. We must see how it will be applied. Is it to apply to hairdressers? What about agriculture? It may be that on very large farms it will be an encouragement for the introduction of still further modernisation, but there are many farmers each employing 8 to 10 people, and they may well find this tax crippling. That is certainly the situation in horticulture. While I am attracted to the idea of covering a wider field than Purchase Tax, we shall need to give careful consideration to the application of this tax in our debates over the next few days.
The other subject with which I wish to deal this afternoon is a subject on which I claim to have a certain expertise—the tax proposed on betting and gaming. Two years ago I put certain proposals to the Treasury which I believe found favour in the eyes of many of those who wanted to introduce a betting tax. These were proposals on how we could achieve a fair and proper tax on betting and gaming. The proposals contained in the Budget and on page 7 in Table I, Customs and Excise, of the summary, set out a system of taxation which will inevitably fail, is completely inept and has no chance whatever of meeting the purpose for which it was designed. A tax of 2½ per cent. upon the stake money of every punter in this country will have a first effect of leading to substantial evasion, a great deal of crime and growing illegal betting. The purpose for which the tax is introduced on betting will be set aside. Furthermore, the tax system is impracticable because the bookmakers who are not honest—and some of them are not—will not only evade the tax but will put the punter's money to their own benefit. The great majority of bookmakers, who are perfectly honest, will pay the tax. Thus, those who are dishonest will reap the benefit of their dishonesty.
The tax will fail, too, because it does not understand the technique of betting. It does not recognise that the ordinary punter does not have a single bet on one race or bet once or twice in one day. The


average punter probably has 12 ls.doubles, trebles, accumulators and Yankees, and the tax provides that someone must calculate 2½ per cent. on each of those shillings. One's imagination baulks at a situation which is so ridiculous and which envisages that we can tax betting by taxing it on turnover.
It does not require much wisdom to make proposals which would achieve for the Chancellor what he wants to achieve. First, it is agreed among the betting fraternity that they are willing to accept a betting office licence of a considerable sum in respect of every betting office. One well-known sporting newspaper said that £30 a week or £1,500 a year could be carried by a betting office as a tax. That would cover the cash betting operator.
I raise this matter today because there is still time to consider these proposals again. I have reason to think that my proposals attracted the Treasury and, when they were made, attracted some of my hon. Friends. I raise the matter today because if they attract the Chancellor the necessary changes could be made. What should he done? First, there should be a betting office licence and, secondly, there should be a tax upon the telephones in the S.P. betting offices. A bookmaker cannot operate without telephones, and by the number of telephones we know the volume of his business. If we wish to tax betting, do so on the telephones and through a betting office licence, but let us give up this absurd notion that we can tax on 2½ per cent. of turnover. Anyone with considerable knowledge of racing knows that we cannot do this without getting into a great many more troubles, and perhaps the most serious of these troubles would be those of enforcement for our police force. In view of the amount of crime in the country the last thing we want to do is to impose still further burdens of enforcement and surveillance upon the police, who will not want this duty and will find it unacceptable.
I am delighted to see the right hon. Member for Dudley (Mr. Wigg) here. When I read about the turnover tax I wondered whether at some stage he would assure us that it was not intended that the tax should break down so that in future it might be argued that the totalisator should take over altogether, getting rid of bookmakers entirely. If the tax

broke down the Government might then seek to set up a complete dictatorship of the totalisator. For some time I have believed that there was a feeling in certain quarters of the House that they would like to see an end of the days of the colourful race course, with the bookmakers, and would like to turn to the dreary way in which they operate in France or America, without the benefit of the traditions of racing in this country.
I turn to the question of gaming. About the right amount has been set for amusement machines. I suppose that it is all right to have a licence for gaming houses which can be fixed at different levels. But the amounts set out are not very suitable. We have a considerable increase in tourism and money is attracted into this country, brought here by those who can enjoy all the pleasures in the "with it" London of today and throughout the provinces. We want to ensure that these premises are made attractive, and it is not a very good method of taxation to apply a low tax to small premises and a very high tax to attractive premises. That does not achieve the purpose which we have in mind.
Would it not be more effectively achieved if it were decided to have proper control of gaming clubs? Might not this achieve the purpose which we are discussing today of bringing revenue to the Treasury, in the first place, and, more important, meeting the social and moral purpose which we have in mind in improving our gaming legislation? When the Betting and Gaming Act was introduced in 1960 it was recognised that amending legislation would be required at an appropriate time. My right hon. and learned Friend the Member for Huntingdonshire (Sir D. Renton) said two years ago that there had not been a long enough period for consideration of such amendments and that the time was not ripe for them. We know that the Home Secretary and the Home Office now think it time to review this legislation.
If we review the legislation for gaming, we can assure effective licensing of gaming clubs. Having secured that, we can control the supervision and surveillance of those clubs with an inspectorate, thus ensuring a code of good and reasonable gaming so that there is none of the social evils and none of the trouble which has


arisen. This proposal is attractive to some of my hon. Friends. Having done that by an inspectorate, we can control the nature of the games played, the type of games played and the stakes, without difficulty, and we can get an effective siphoning off of the taxation which we want. That will be easy to do. In order not to put a further burden upon the police force, this can be done by setting up a gaming commission similar to the Jockey Club, and, I hope, rather better managed. If we have a first-class gaming commission, we can ensure that we get the revenue which the Government require, on the one hand, and surveillance and licensing control, on the other hand.
I spoke, first, about the poll tax and the grave effect which it will inevitably have, unless there is some amelioration, on both those who take holidays and those who serve the holidaymaker. Secondly, I spoke about the changes necessary to bring into effect taxes in respect of betting and gaming—taxes which I believe it to be absolutely right to impose. I have raised them so that the Government may consider what I have said, and I have done so in a wholly constructive sense. If the Government are determined to go on with a poll tax which covers hotels, restaurants and catering as well as agriculture, I hope that they will examine the situation carefully to see whether compensation can be provided by investment allowances or in other ways to meet the grave disadvantages which they are placing on certain sections of the community.
If the Government are to tax betting, gaming and bookmaking, I sincerely trust that they will try to do it efficiently so that we are not left with more crime and more contempt for the law but respect for the law because we introduce a system which will be respected by all and sundry and which is workable. In that event those who have knowledge and experience of the subject may assist the Government in achieving the purpose which we should all like to see achieved.

5.45 p.m.

Mr. Roland Moyle: I thank you for calling me, Mr. Steele, and for allowing me to undergo the ordeal of making my maiden speech. I crave the indulgence of the House and I am well aware that any ordeal which

I may be undergoing will no doubt be fully reciprocated by those hon. Members who remain to listen to me. In the circumstances, the hon. Member for the Isle of Thanet (Mr. Rees-Davies) will appreciate that I cannot comment on his arguments.
I represent the constituency of Lewisham, North, succeeding Mr. Christopher Chataway who represented it in the last Parliament, a gentleman who made his name before he entered the House in a way which appealed to many people. He also made his name in the House among other things for his support for a number of liberal causes and his hon. and right hon. Friends on both sides may rest assured that his torch will not fall to the ground as a result of his departure and that I am only too ready to pick it up and carry it forward as best I can.
Lewisham is a tadpole-shaped wedge thrust into the south-east London suburbs and pre-eminently an area where Londoners rest from one bout of commuting to gird their loins in preparation for the next. It is a dormitory area and as such is primarily interested, among many other problems, in housing. Because of that, I welcome the announcement by the Chancellor of the Exchequer that he is to go ahead with the betting tax, because that tax was originally tied up with a scheme for reducing rates of interest on house purchase mortgages. The tax will be welcomed widely by many of my constituents and those who hope to move into the constituency.
I hope, too, that some of the benefits of the taxation which my right hon. Friend intends to raise will rapidly find their way into the council housing accounts of authorities throughout the country, particularly Lewisham Borough Council, for we have a number of council tenants in the constituency who will welcome the promised increased council house subsidies. We find these people eminently desirable citizens and we hope to welcome a great number more within the next few years.
It is also an area where the benefits of the Rent Act, 1964, are beginning to spread and where appreciation of its benefits is spreading even more rapidly. However, there is one reform which will be welcomed by a number of my constituents and which does not require any


taxation to effect. That is the project to carry out a measure of leasehold reform. Such a reform would help to alleviate a heavy anxiety in the minds of many of my constituents and to relieve them from a sharp sense of injustice, which I can readily appreciate in view of the principles which have informed our society over the last 10 or 15 years.
One of the areas of distinction in the constituency is Blackheath, an area of gracious charm with many Regency buildings and with a high standard of amenities which the inhabitants are determined to preserve and foster. I share their determination and I will assist them to carry out that laudable objective to the best of my ability throughout my service in Parliament. It is the area in the constituency which gives one the greatest sense of history. To one of my cast of mind, the greatest claim to historical fame would be the fact that Wat Tyler and his peasants camped on Blackheath the night before they took London. It gives me some feeling of satisfaction to think that I, too, camped in Blackheath the night before we took North Lewisham, although enjoying somewhat more substantial accommodation than Wat Tyler, with the last 900 years of a 999-year lease and with a mortgage which will take another 17 years to pay off.
But to get from North Lewisham to Westminster one has to travel, and there is the rub. I cannot help feeling that Wat Tyler in his progress along the line of the Southern Region Railway to London Bridge and Cannon Street enjoyed a considerably easier time than many of his present-day successors, for at least he knew that if he steadily progressed in a westerly direction he would get there. It is the view of most of my constituents that public transport has deteriorated, is deteriorating and, unless something very drastic is done, they have a shrewd suspicion that it will continue to deteriorate. I should like to say more about that on another day.
The fact remains that just as unemployment was the major social problem between the wars and housing the major problem since the war, in the years to come transport, and particularly the accommodation of the internal combustion engine to our urban way of living, will be the major social problem.
The Chancellor of the Exchequer has obviously devoted a great deal of his attempt at getting the economy on the right lines to relying on increased industrial efficiency. He is right to do so, for industry obviously has the major contribution to make. In this respect, I am put in mind of the advice which I gave to a number of constituents who during the election asked me what they could do as ordinary individuals to help to solve the country's economic problems, what they could do to put their backs into the job and to get us in the position which we hope to reach. I said, "If management comes forward with proposals for reorganising the work and increasing efficiency, do not turn them down, but try to find out what sort of cut they are prepared to offer you; have a jolly good bargain with management and, finally, when agreement is reached, stick to it and work it in the intended spirit until the time comes to have another go at it".
It is very easy to make generally acceptable statements about industrial relations. I have had 10 years' experience of applying them in industry. The trouble—the real fun if I may say so—comes in trying to apply those generally acceptable statements to the prevailing conditions in industry. If the people in this country can get into the habit, not of saying "No", to proposals for change, but "How much?", we shall begin to generate a dynamic in this country which will take us a long way towards the solution of our economic problems.
Those things are now called productivity bargains. We have heard a great deal about them in the last year or two, and I am glad that the Prices and Incomes Board has nailed this standard to its mast. However, a word of warning is appropriate. These productivity bargains are usually advocated as methods by which the British worker is induced to slough off his restrictive practices, accepting increases which are larger than usual in return for selling work practices to the management. In my experience of productivity bargaining—and I have been associated with two of the largest productivity bargains in British industry in terms of numbers in the last two years—the strains placed on management and the upheaval on management structure are far greater than those placed on the employees.
What is the essence of a productivity bargain? It is that the management pays money in order to get more room to manage. If it is to achieve anything as a result of such an agreement, it has to have the technical expertise to take advantage of the freedom of manoeuvre granted to it. It is my fear that these productivity bargains will be used in and out of season throughout the country when many managements are not in a position to be able to exploit the opportunities which the trade unions give them. That is the one word of warning which I have to say at this stage on the subject of productivity bargains as a counteraction to the wild enthusiasm with which they have been greeted throughout the country.
I hope that I have not exhausted the indulgence of the House on this occasion and I thank all hon. Members who are present for having listened to me.

5.55 p.m.

Mr. Frederic Harris: It is my great pleasure and privilege to follow the hon. Member for Lewisham, North (Mr. Moyle) and to congratulate him on behalf of the Committee on the excellent maiden speech to which we have had the privilege of listening this evening, not only on the material of his speech, which we all found interesting, but on the great confidence which he displayed in delivering it. I must say that I was very envious even after 18 years in the House of Commons. He will understand when I say that his predecessor, Mr. Christopher Chataway, was held in deep affection by hon. Members, not only on this side, but on both sides of the House of Commons, and we shall miss him very much, indeed. However, we look forward with pleasure to hearing the new Member's future speeches.
Speaking so shortly after the Budget Statement, it would be wrong of me to attempt to comment in too much detail on what the Chancellor of the Exchequer said, but I share the views of my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) about the betting tax—like my hon. Friend, not so much about the gaming tax—for we must make sure that the betting tax is satisfactory and fully effective. I have many misgivings about it, but time will tell. I sincerely

hope that the troubles which my hon. Friend mentioned will not come upon us, because the tax would then be a great disservice to the country.
I was concerned that the right hon. Gentleman should take Corporation Tax to the full limit of 40 per cent. Many of us suspected that he would and some prophesied that he might even go beyond that figure. It is not exactly an incentive to industry that he should have taken the figure to 40 per cent.
However, undoubtedly the matter which will attract our interest in the weeks ahead will be the Selective Employment Tax. This is a new and very heavy tax. As such, one can say that the Budget will be very tough when fully effective. Many difficulties will arise, some of which can be immediately foreseen and some of which were mentioned by my right hon. Friend the Leader of the Opposition. No doubt, as the debates on the Budget develop, we shall get the full details.
The new tax seems to be an extraordinary temptation to manufacturers at least to over-employ. It seems fantastic to give them a premium for the number of employees they decide to have. I think that the tax will mean tremendous duplication of administrative effort and expense, for people are to be made to pay the tax and then claim rebate. The cost of administration will be immense and undoubtedly the cost will be passed on in the price of services and so put up the cost of living. It will also be easy to increase the number of bureaucrats, which is surely a disturbing factor normally to be avoided.
Before making what I hope will be a short intervention in the debate, I should like to make a personal reference to a former colleague of mine, Sir Richard Thompson, who was Member for Croydon, South. He lost at the last election by a mere 81 votes. I should like briefly to place on record my appreciation of his unstinted hard work over a period of 15 years for Croydon, South and the town of Croydon. He will be a great loss to the House and I am pleased that he intends to soldier on in public life. Having said that, I should like on behalf of the House to extend a welcome to the new Member for Croydon, South (Mr. Winnick), who has come into the House even younger than I was


in 1948 and who has got off to a flying start, having delivered his maiden speech only two days after coming into the House.
In making these few comments tonight about the Budget I do not intend to attempt to set myself up as an expert economist. Most of us agree that we suffer from enough of these, and certainly that we suffer from enough experts. Invariably even they do not agree with themselves. This must be recognised as a tough Budget and I am sure that it will be when it is fully studied, and all its implications realised. It certainly confirms what the Conservatives were saying would be the country's lot once the Socialists were returned to power. Certainly, so far as Croydon is concerned, it is a point which most candidates forgot to mention during the election.
We have reached the impossible stage when we face more and more taxation. Do the Chancellor and the Treasury think that this is the way to get the country out of the red? In my personal and business capacity I consider that we already suffer far too much from over-taxation. We have ever-increasing taxation and this adds not only to our personal burden and the burden of our people, but very clearly to prices and services. This Budget will hit very hard at prices and services and it is deliberately intended to do so.
It is a vicious circle. It discourages personal incentive; in many respects, the effort of the individual becomes quite pointless. To overcome the present troubles we should be encouraging our people to work harder, thus avoiding the fantastic hidden unemployment which we all know, regrettably, exists in all walks of life. The answer will not be found in taxing the people more and more. As a businessman I know the difficulty of recruiting staff, particularly when we have tough Budgets against us. Ultimately and sadly, one can hold one's staff or tempt more to join the business only by giving increases in wages and salaries. Consequently, the sole criterion cannot be the pegging of wages and salaries back to our deplorable low increase in national productivity in the last year or so. We just have to keep our staff, at whatever cost, and many companies can ill afford this. Eventually they will come up against difficulties in a bigger way and

some will go out of business. I should like to ask the Treasury what is the answer to this?
Another point I wish to raise relates to the complexity of the present tax system, which, as we all know, was greatly increased by the Finance Bill of last year, and which, from what we have been told today, is going to be added to again in the next Finance Bill. People just do not know what tax they should be paying. They certainly do not know what allowances they are entitled to claim. The Treasury is obtaining additional taxation, most of it unfairly and often almost illegally. Professional advisers often cannot cope because they are overworked and often do not know the full implications of the taxation law. It is a very sad state of affairs.
If we are the modern country we claim to be we should go all out to simplify our taxation system. A strong directive should go out from the Chancellor to this effect. Even rate collection today is a constant worry to the public because, like tax, it is an ever increasing burden, full of complexities. People do not know what rate rebates they are entitled to claim, and the last legislation passed in this House regarding such matters had added to the problem.
As to the simplification of the tax system, I should like to give one concrete example which relates to Road Fund licences. In March I had an Adjournment debate in the House under the heading of "The scandal of unlicensed vehicles". This followed the increase, in the last Budget, of the Road Fund licence from £15 to £17 10s. per vehicle. As such taxes increase so do the number of tax dodgers. I received a considerable number of complaints from constituents who felt very bitter because a lot of people were dodging the payment for Road Fund licences. Today there is still an outrageous evasion. I do not intend to go over the details of the Adjournment debate, but after very full and personal investigation I came to the conclusion that—often through lack of staff or through the dreariness, or the length of proceedings in the present archaic system—of about 9 million car owners, about 4½per cent., or something like 400,000, do not initially pay Road Fund tax. It was rather amusing at that time to go to


New Palace Yard and find large numbers of cars which did not have current Road Fund licences.

Sir Arthur Vere Harvey: Privilege.

Mr. Harris: It may be privilege. A year ago the Financial Secretary tried to palm me off by saying in a letter that the percentage was roughly 1 per cent. This was undoubtedly an under-statement. Then the Parliamentary Secretary to the Ministry of Transport, who answered me in the Adjournment debate, gave a most unsatisfactory reply. It is obvious to many that between £5 million and £7 million a year of such tax is not being paid. This was at a time when the new Minister of Transport announced that she was cutting the road programme for 1966–67 by £19 million, and at a time when we had the highest ever number of road deaths.
There is always the honest person who, unfortunately, forgets to renew his licence. This could be overcome. It would not be difficult to send out reminders as is done in the case of radio and television licences, driving licences and dog licences. There is, too, the dishonest person, who will try to get away with this as long as he or she possibly can. Although I could not develop a full alternative in the Adjournment debate I did put forward a system in which something like 6d. a gallon was put on the price of petrol. This would automatically get rid of tax dodging and eliminate the task of the frustrated and already overworked policemen, who are trying hard to find the offenders and who are constantly bombarded by the public, complaining about such offenders. It would also dispense with the services of a large number of local authority employees who are now engaged in this work and who could be given much more satisfying work to do.
It would save a very considerable amount of money and would be fairer to the man who used his car only at the weekends. The man who used his car more frequently would accordingly pay a little more. We need some original thinking along these lines. It would undoubtedly pay dividends. Most of us know of other ways in which simplifica-

tion of the tax system could be brought about. Why do not the Government attempt to do something about this? At present the honest taxpayer undoubtedly pays for the dishonest taxpayer. This is aggravated more as taxes are increased, as invariably happens in each Budget. The ever-increasing burden of tax is surely only a very short-term answer to the country's economic problems. In the long run, we must lose out.
We must provide incentives greatly to increase our national productivity and to keep prices more steady, particularly export prices, in this very keen competitive world, for exports are our lifeblood, otherwise we shall gradually grind ourselves to a halt. But it will be the people who will suffer from such lack of leadership and guidance by the Government. One deplorable economic setback last year was undoubtedly in regard to the essential savings which are as valuable to the Treasury, if not more so, as taxation.
During the 13 years that the Conservatives were in power, National Savings increased by £200 million a year. But, unfortunately, last year they went from a net surplus of £232 million in 1964 to a net deficit of £26 million. In such inflationary times, how can we seriously blame people if they put savings into more tangible assets which are more liable to hold their values rather than into cash or National Savings Certificates? I had hoped that this afternoon the Chancellor of the Exchequer would have attempted to make a more dramatic statement in this respect to find a way of halting this very disturbing decline and to get savings back on the right road again. But he has gone about it only very quietly indeed and made some very small alterations. I find this aspect extremely disturbing.
I wish to make a point which I should like to be passed on to the Chancellor of the Exchequer. It may be considered small in the context of the Budget, but it is important to many individual taxpayers. Too often I find tax inspectors building up cases against taxpayers even when they have nothing to go on except surmise. Then their inquiries drag on until the person on the receiving end, unfortunately, becomes quite ill through sheer worry, although he or she has really nothing to worry about.
In my opinion, the Chancellor of the Exchequer should ensure that taxpayers do not do this kind of thing. Once tax inspectors commence such inquiries, they should be compelled to conclude them very quickly one way or another. To my mind, it is quite deplorable that they should unnecessarily prolong the agony. In saying this, I am speaking on behalf of a large number of honest taxpayers who have frequently experienced this tax persecution. It is grossly unfair to the individuals concerned.

6.13 p.m.

Mr. Laurence Pavitt (Willesden, West): I agree with only two points which the hon. Member for Croydon, North-West (Mr. Frederic Harris) made. The first concerns the maiden speech of my hon. Friend the Member for Lewisham, North (Mr. Moyle). I assure my hon. Friend that the congratulations of the hon. Member for Croydon, North-West were very sincere, and that the hon. Gentleman spoke for all of us when he commented on my hon. Friend's speech. Many of us have had to listen to a number of maiden speeches. I assure my hon. Friend that what was said about his was said sincerely on behalf of the whole House because he spoke with fluency, knowledge and with the kind of approach which the House thoroughly enjoys.
The second point on which I thoroughly agree with the hon. Member for Croydon, North-West is the welcome which he gave to my hon. Friend the Member for Croydon, South (Mr. Winnick), who happens to be one of my constituents and still serves on my local authority.
On those two points, the hon. Member for Croydon, North-West and I are in complete accord. There is very little else on which I agree with him. He mentioned, as is customary within his party, the great problem of bureaucrats. I am reminded that the Conservative Party fought four elections saying that it would bring down the cost of public expenditure. At the end of its terms of office, after the four elections, there were still more civil servants employed than ever before.

Mr. Peter Walker: The hon. Gentleman will find that there were 18,000 fewer civil servants when we left office than when we took office.

Mr. Pavitt: I accept the point. The theme which runs so frequently through

the speeches of hon. Members opposite—and the hon. Member for Worcester has made this point in his turn, too—is that we must never have taxation; we must not raise the necessary finance. Then the following day, when we discuss schools, roads, hospitals and everything else, right hon. and hon. Members opposite are most anxious to convince the world that they want them. When it comes to the means of providing them, immediately they have a profound resistance. This theme ran throughout the speech of the hon. Member for Croydon, North-West.

Captain Walter Elliot: The way to do it is to increase the national income and then we can have not only more schools and hospitals but less taxation. That is what the Conservatives did when they were in office.

Mr. Pavitt: I cannot entirely accept the hon. Gentleman's point, because what he is, in effect, saying is that this is the only remedy, whereas if he had listened with great care, as I did, to the Chancellor of the Exchequer, he would have realised that the policy of the Government is to increase productivity so that the total amount which the Chancellor of Exchequer can tax is that much more because of a planned economy, that there is no need to raise individual rates of taxation—which my right hon. Friend has not done today.
As the House knows, I am a Co-operative Member of Parliament. I want to make a quick response to what the Leader of the Opposition said about the effect of the new tax on the consumer. I understand my right hon. Friend's difficulties. Whatever taxes he proposes, it is said, "They are all right provided they do not affect me." What my right hon. Friend has done, in an ingenious way, is to produce an entirely new tax which will give him a fresh source of revenue and will enable him to deploy this new sector of taxation in future years before the five-year National Plan is finished.
The basis of the country's financial stability rests on whether we shall succeed in the great adventure on which the Government have embarked of a prices and incomes policy—a planned growth of wages and a planned economy. This is the start. This Budget is at the outset and is the framework within which


that aim can be achieved. In pursuing it, the Government have been under pressure from people interested in incomes, on the one hand, and people interested in prices, on the other. Unless we are able to hold prices, the task of trying to hold wages, salaries and other incomes will be extremely difficult. Therefore, I contend that the starting point of this policy must be prices.
I express concern that the new tax, which will affect services rather than manufactured goods, is likely to have an immediate effect on prices. Once again, it is the housewife who will have to bear the burden. Housewives, although there are many of them, are not organised in precisely the same kind of pressure groups which are organised elsewhere and it is difficult for their voice to be heard. I speak, in some respects, for a Co-operative movement which consists of 13¼ million members which is not a mean proportion of the public—one in four. This movement will be considering with much deeper concern than I have been able to show in a short speech the effect which this tax will have on prices and particularly on groceries.
To look at the matter from the sectarian point of view of the Co-operative movement, we have 250,126 employees. Hon. Members can work out what impact 25s. makes on the weekly pay roll. Of that number, 218,222 are directly involved in services and sales. I suspect that some of my colleagues who have given service to the Union of Shop Distributive and Allied Workers will be interested to know what effect the tax will have on the union's members.

Mr. R. E. Winterbottom: On a point of correction, the 226,000 employees in the Co-operative movement are being charged up with 25s. as a debit charge when the vast majority of them are women and will not have to pay the 25s.

Mr. Pavitt: I welcome the correction of my hon. Friend, who has had a good deal of experience in these matters. If what he says is correct, it is most welcome. This is the sort of point which we shall examine in great detail in the next two or three days, but I understand that women employees are also charged for at a reduced rate. Whether it has

such a swingeing effect or is less than would appear at first sight, it will still be a heavy burden which has to be borne.
I bear in mind that the Co-operative organisation is non-profit-making. Any surplus that it makes goes back in the form of dividends in proportion to the size of people's purchases. The existing dividend in a co-operative society may well be something like 4d. in the £ on sales. I estimate that this new kind of tax might well eliminate the dividend in some societies. I shall need to do more homework about this, because it is difficult to give accurate facts if one speaks immediately after a Budget Statement has been made.
At the same time as the distributive trades meet this kind of problem, my right hon. Friend is also making a change in the way in which investment incentives are given by the Government, and this will affect distributive costs and not production. Here, therefore, is a second way in which I estimate that the Co-operative movement loses something like £1¼ million or £1½ million because of the rearrangement of the way in which incentives are being given.
Inevitably, an increase in the cost of distribution has the same result as increasing the cost of production. When the final article is sold, the increase is passed on to the housewife. This aspect must be given a good deal of thought if we are to ask the community, as we must, to accept a prices and incomes policy. We must accept that prices have to be kept down to keep wages within the rising level of productivity.
Last year, 80 per cent. of the total sales of the Co-operative movement, representing a figure of £1,068 million, were accounted for mainly by grocery, butchery and greengrocery. The other points of consumption accounted for only the remaining 20 per cent. Over this whole sector, therefore, there will be a tremendous rise in cost.
It will be difficult to persuade members of trade unions to co-operate with the prices and incomes policy when their wives tell them that they cannot make both ends meet. Their husbands will then say, "We have agreed through the T.U.C. to restrict our demands for wages within the productivity level." The


housewife will reply that the price of bread, butter, sugar, milk, tea and other items is now higher and that without more income for her purse, she cannot manage. We must, therefore, be careful to maintain a proper balance in fulfilling my right hon. Friend's desire to give incentives to increase exports and to redeploy manpower so that any spare manpower goes not into services, but into production.
Most grocery stores are understaffed. There has been a big movement away from personal salesmen to self-service in shops because of the shortage of staffs in retail distribution. There is not a surplus that will keep flowing from behind the counters of shops into the factories to produce more goods. The surplus simply does not exist. I hope, therefore, that in the course of the debate, we shall get a little more intormatian about the kind of Government help that we can expect if the retail distributive trades are to absorb the new tax, as we hope that they will, without passing it on to the consumer. Will the Government look again, for example, at the investment incentive scheme? What other action can they take so that the consumer will not be, as usual, on a sticky wicket?
During the whole of my time in the House of Commons, I have seen that in any question of fiscal or economic policy the Government are subject to pressures. There has only to be an agricultural Price Review and every hon. Member knows that his wastepaper basket will be full next morning with the stuff which we receive from the National Farmers' Union. Whenever anything happens about drugs, every manufacturer of medicines sends us his literature. If something happens affecting workers, the trade unions make sure that their voice is heard both in the House of Commons and elsewhere. There is great difficulty, however, in getting organised pressure for the housewife and the general consumer. I hope that during the next five years, in implementing the Government's plan, we shall see a little more strength of action in this direction.
My last point is to ask my hon. Friend the Minister of State for clarification of the way in which services provided through the National Health Service will be affected by the new tax. My right

hon. Friend the Chancellor of the Exchequer has made it clear that in the case of nationalised industries and other sectors such as the Civil Service, it will be a matter of taking it from one pocket and putting it into another. I would be interested to know how all this will affect a very large body of people who are employed by, for example, the regional hospital boards, in all grades—not simply nurses, medical staff or professions supplementary to medicine such as physiotherapists and radiographers, but hosts of people like porters, who wheel the trolleys, stokers and all the others who help to make a hospital efficient. Will all these people come within the purview of the new tax, or will there he an arrangement by the Ministry of Health so that the Health Service is regarded as a nationalised industry: or is it regarded in the same way as the kind of exemptions which my right hon. Friend announced for local authorities?
Naturally, we shall have more time to consider and study my right hon. Friend's proposals in detail. I hope, however, that he will take seriously the whole question of the way in which retail distribution will be affected and in which the new tax results in a policy which makes the housewife's task even more difficult than in the past. This might even jeopardise the whole of his gigantic plan to get organisation and some kind of sense into our prices and incomes and productivity policy. If my right hon. Friend omits to tackle this question, it does not matter how successful he is with Mr. Woodcock and the T.U.C.; if he fails with prices, his whole policy will be in jeopardy.

6.28 p.m.

Sir Arthur Vere Harvey: I can well understand the concern of the hon. Member for Willesden, West (Mr. Pavitt) at the statement by his right hon. Friend the Chancellor of the Exchequer. When the Chancellor made his statement, many of us might have thought that it was novel, extremely well delivered, compact and easy to put into operation. After an hour's reflection, however, my views agree very much with those of the hon. Member.
The impact of the Chancellor's statement will be enormous. When the public study it in the hours ahead, they will be concerned, because it is quite contrary to


what we were led to believe during the General Election. Only three or four weeks ago, we were told by the Chancellor that there would be no severe taxation in the forthcoming Budget. He eased up a little on that as the campaign went on, but I understood him this afternoon to say that in a full year his new tax will raise £340 million. If that is not severe taxation in one year, I do not know what is.
It was hinted last year that the Corporation Tax would probably be at a level of 35, 37½ or, possibly, 40 per cent., although the latter figure was suggested as unlikely. More recently, the Press have suggested 42½ per cent. Many people will, therefore, give a sigh of relief that it is not to be higher than 40 per cent. In my view, that is much too high, because it means that the investment that is required in industry will not be made. Profit margins in industry are narrowing daily. Salaries and wage rates and every single charge in industry are on the increase. If profits disappear, the people who suffer in the long run are the workers and, in consequence, the Government, who will fail to get the revenue which they expect.
We heard what the Chancellor said about sterling. I understand his concern that large sums have been leaving Britain for Australia, New Zealand and elsewhere. If, however, we are to impose restrictions on the export of sterling to those countries, we must expect something in return. We must expect them to take some sort of retaliatory action.

The Minister of State, Department of Economic Affairs (Mr. Austen Albu): indicated dissent.

Sir A. V. Harvey: The Minister disagrees. I hope that he is right. I shall wait to hear whether there has been full agreement with the countries concerned. If we are to be denied free movement of sterling among one-third of the world's population, these restrictions are the thin edge of the wedge. The Chancellor said that this restriction was only temporary, but that has been said of many other arrangements and restrictions. We were told during the war that Purchase Tax was to be only a temporary arrangement. I have recently read a speech in HANSARD by Lord Attlee, when he was a Member

of the House of Commons, in which he wanted to see the end of Purchase Tax. Twenty-five years later, we still have it. We shall follow up later the question of seterling, but it is alarming that restrictions are being placed upon it for the first time.
My purpose in rising to speak is to refer to agriculture. I could not believe my ears when I heard the Chancellor say that the new tax upon employees in agriculture would be taken into account at the next Price Review. I cannot understand what he must be thinking about, because agriculture has had two disastrous Price Reviews, this year and last year, when the industry has had to contribute something like £30 million over and above the grants given by the Government. There will undoubtedly be a well-justified demand by the farm-workers' union in the coming weeks for increased wages—and they should have an increase in wages. The workers in agriculture deserve every penny they get.
But where will the money come from? I have done a rough calculation which shows that under the Chancellor's proposal, the agricultural industry must contribute approximately £¾ million a week. On the basis of 600,000 workers in the industry at 25s. per head, this represents about £40 million a year. We are told that this will be taken into account at the next Price Review.
The new payments will start to be made in November. Heaven alone knows how many months it will take farmers to get their rebates from the Government. The Government are loading themselves up with rebate schemes, and they will be getting others going before this one comes into operation. To tell the farmers of this imposition today is disastrous for the industry.
In the National Plan, the industry that could make the greatest contribution towards partially solving our balance of payments problem is agriculture. It could produce anything between another £100 million and £200 million worth of food a year. We will have the extra-ordinary situation of the dairy farmer or the cereal grower being penalised but the chocolate manufacturer, who gets his milk at half its real price, being treated as a manufacturer. Surely, farmers who grow food should be treated as manufacturers. They should come into the full


orbit. Enough men are leaving the farming industry without making things more difficult for the industry. People are leaving because of low wages and profit margins, and small farmers are having to get out of business altogether.
Clearly, the Labour Government have no love for agriculture. The hon. Member for Willesden, West referred to papers which he received from the National Farmers' Union. I have no doubt that in Willesden he is not greatly concerned about agriculture, but I suggest that nationally this industry can make a real contribution towards solving our problems. It is an industry which has always done what has been asked of it by successive Governments. It has had no strikes, it gets on with the job and it has increased production year by year with fewer men, yet this kind of disgraceful treatment is meted out to it today.
On the question of Government expenditure, the Chancellor told us nothing, except possibly on defence, about what the Government will do about their own affairs. They are the country's largest employer of labour. One reads of firms like Courtaulds, I.C.I. and Shell engaging experts like McKinsey's to go through their organisation with a fine comb to show what staff can be dispensed with. Why do not the Government set an example to the country by putting a fine comb through Government organisations and nationalised industries? The hon. Member for Willesden, West referred to civil servants. We have nearly 12,000 more civil servants today than we had a year ago. How many more will there he in a year's time with all these commissions and organisations that the Government propose to set up? That is where the money is going. If the Government want anyone to follow suit they should set their example, but they are not doing so.
I am sure that McKinsey's or some similar organisation, if it went through the Post Office, could achieve a great deal. But even Lord Beeching, doing the same sort of job for British Railways and having some success, was "fired". It was unsavoury of certain hon. Members opposite to throw him out when he was achieving so much. Of course, no one likes the results of these inquiries. No executive likes being told that he is

surplus to the establishment. But we must sort out these things.
What worries me is that about 20 per cent. of the 10 million workers employed in industry are in the wrong industry, be it the motor industry or the aircraft industry, or any other. They are being held in their jobs by their firms because they will be needed if there is an upsurge of orders. What we want is a redistribution of workers. What will happen, however, is that there will be a great incentive to manufacturing industries to take on more workers. We want to distribute the labour to those needing it most. There is a shortage of skilled workers in the North-East. One cannot get skilled workers. It is surprising?
A young doctor in my constituency qualified a year ago and works in a hospital in Manchester. By the time he has paid his keep he is left with £30-odd a month. One more year and this young doctor intends to go to New Zealand, following 600 other doctors who have left the country in the past year. The Government must give incentives not only to doctors and professional men but to everyone. By taxing people so very heavily they will drive them out of the country. Some years ago the Prime Minister talked of the "brain drain". It is greater today than since the end of the war. People are flocking out of the country by plane and ship to Australia, Malta, Canada and elsewhere in the Commonwealth, and they include men we can ill afford to lose.
If our industries are to make the contribution that is needed, what must be done is to get men out of industries where they are surplus and not really required into those industries which need more labour. This is a serious situation. The Prime Minister will no doubt go out on his crusade and we shall be told again about the Dunkirk spirit. But what the country really must be told are home truths and hard facts.
The truth is that unless every person, whether he be a chairman or managing director, or an office cleaner, appreciates that he has to work another five or ten per cent. harder than in recent years, the country is in for a very rough time. The average working week is 40 hours, but the average number of hours worked is 47. Overtime totals on average seven


hours. The individual is taxed so highly that he wants overtime to make up for his high taxation.
Hon. Members opposite say that we complain about Income Tax. Not at all. Of course money has to be raised. But if we could increase our gross product, that would take care of the extra schools and motorways that we all want. We cannot live on credit and "tick".
The Chancellor was very optimistic about the repayment of loans. We must face the fundamental issues affecting managements and unions. Far too many executives climb into their offices at 9.45 a.m. Continental firms know this and are quite aware that they cannot even get a telephone call through before 9 a.m. No typist will start work before 9 a.m.
There must be a change of outlook by everyone in the country if we are to make our way as a competitive nation. The Government appear to be converted to the idea of joining the E.E.C. The Prime Minister is doing another somersault and we shall probably be in it within two or three years. But if we do go into Europe there will be strong competition among all classes. Even the unions will have to face competition from abroad. But it will be the best way to bring the country to its senses so that it uses its great energy and experience before it is too late.

6.40 p.m.

Mr. John Fraser: I am grateful for having caught your eye, Mr. Irving. The constituency I represent is Norwood and it is, I understand, customary to say something about the former Members for one's constituency. I hope that the right hon. Member for Streatham (Mr. Sandys) will not take it in offence if I do not on this occasion pay tribute to him, but since 1945 my constituency has been represented by two Members.
The first was its first Labour Member, Mr. Ronald Chamberlain, who served from 1945 to 1950. The second, until his retirement this year, was Sir John Smyth, who was very much loved in the constituency and, I understand, was regarded also with very great affection and esteem in this House. He had the unique distinction of winning in the field the very highest award that this country knows. I know that right hon.

and hon. Members will miss him greatly and will wish me to record some tribute to him on his retirement.
Perhaps the greatest problem affecting my constituents, like many other London constituents, is housing. Norwood is, like Lewisham, North, a dormitory constituency yet not without life and containing a microcosm of residential London with housing ranging from lush town houses to some sorry tenements. It forms part of one of the largest London boroughs, Lambeth.
It is a measure of our housing difficulties that we have 13,000 families on the waiting list with little hope of being able to provide rehousing for them within the area. This is not because of lack of effort by the Government or the local authority but because the constituency has run out of land and is looking to a solution outside the borough.
We would welcome a reduction in service industry employment in London which would perhaps reduce the imbalance of employment in different parts of the country. We welcome the establishment of new towns and overspill areas. We welcome proposals for lower interest rates for local authorities, which are thereby enabled to get on with building more houses.
I want to refer to Income Tax matters which affect people who might be trying to find some other form of housing in my constituency than council housing. The first course open is that of buying a house, which appeals to many in my kind of constituency. For some time it has had the advantage of Income Tax relief on mortgage interest but this has always worked rather unfairly in that the man earning the greatest amount of money and paying the highest rate of tax got the greatest housing subsidy through Income Tax relief, whereas those with low incomes and perhaps large families got the lowest Income Tax relief—the lowest Income Tax subsidy, in other words.
Moreover, it is difficult for people, when buying a house, to calculate the cost to them, because jobs, family circumstances and Income Tax may change. It is difficult for them to calculate the true cost of buying a house because of these complexities. It is, therefore, particularly welcome that the Government have made proposals for mortgage option schemes


whereby people will have set out firmly the benefits and reliefs to be made available. This is a move that my constituents, especially the younger people about to set up home, will welcome.
Another form of housing which has been encouraged by both this Government and the last is the establishment of housing associations. It is particularly welcome that in my area there are three co-operative housing associations. Before 1963, when people came together to form a co-operative they borrowed money from the local authority or the Government and paid rent—which in effect was the same as the mortgage payments by owner-occupiers. The difference was, however, that a member of such an association got no Income Tax relief on the interest element in his rent whereas the owner-occupier got relief on his mortgage.
This situation was remedied by Section 43 of the Finance Act, 1963, which, in effect, said that, if tenants of a housing co-operative were also the members of the housing co-operative, and if it was entirely democratically controlled by the tenants in the co-operative, then the income Tax reliefs available to house purchasers would, by machinery to be made available, be given to the tenants of such housing co-operatives as well. However, the same drawbacks still obtain when calculating the amount of rent that will be required.
A person might go into a housing co-operative newly married and then, when children come along, there are effects on Income Tax. It is difficult to give such people any idea of the amount they will get and the amount they will have to pay in going into the co-operative. I commend to my right hon. Friend either an extension of the proposed mortgage options scheme to housing co-operatives and housing associations, so that when they get money they know that relief has been given and can state fairly to their prospective tenants the rents required without having to make haphazard calculations of Income Tax reliefs, or a uniform rate of relief to be given, roughly equivalent to the average relief given to all these tenants. When people invest in building societies, they get standard rates of interest without the complication of tax reliefs. All I ask is that tenants of co-operative housing associations should be given a similar type of relief

so they know before they rent their houses exactly what they will have to pay.

6.48 p.m.

Mr. Norman St. John-Stevas: I must first congratulate the hon. Member for Norwood (Mr. John Fraser) on a most distinguished contribution to the debate and also his predecessor, the hon. Member for Lewisham, North (Mr. Moyle), who also made his maiden speech today. I hope that they will forgive my congratulating them, for I am almost as junior as they are. Nevertheless, it falls to me by convention of the House to extend congratulations. I am sorry that someone of greater seniority than I is not able to commend them on their first oratorical expeditions in the House. We all hope that we shall hear them again soon.
My major criticism of the Budget is that, like so much of Government policy, it is wholly irrelevant to present British economic needs. At times when the Chancellor was speaking, I sensed that his main concern and his main energies seemed to he devoted to the task of stopping up the loopholes of tax avoidance rather than in tackling the much more vital problem of increasing the growth in our wealth.
I feel that the Budget itself, as an institution, is certainly in need of reform, and it is a pity that the Government have missed this opportunity once again. One reform which I should certainly like to see enacted would be the equating of the financial year with the calendar year. Why in fact should we have a Budget beginning and ending in April?
This point has an especial significance if the Government are indeed serious about their intentions of joining the European Economic Community, because one of the steps which could be taken to align ourselves with the countries of the Common Market is precisely this. This is the position in every member country of the E.E.C. Even if the Government have so far refused to realign our agricultural policy with that of the Six, as a preliminary measure before applying to join the Common Market they could, perhaps, make a small start here next year.
I must congratulate the Chancellor on one thing—that he resisted the temptation


to play up the importance of the Budget in our economic situation. In fact, he went to some lengths to play the importance down, with a self-sacrifice which is rare amongst politicians. I do not regret the absence of Mr. Gladstone's bag, although I regret very much more the absence of his financial principles, which seem to have been abandoned by all parties in this Committee—the excellent basic principles that taxation is a bad thing and that the money should be allowed to fructify in the pockets of the people. The effect of dramatising the Budget must be to limit a Chancellor's own freedom of manoeuvre, because it concentrates the attention of our foreign creditors on what we are doing with our finances at a particular moment, and they thereby acquire an undue influence over our affairs.
The truth is that the Chancellor's measures today were dictated not so much by the needs of the British economy as by the very urgent need to reassure our creditors abroad. In our present situation of indebtedness the Chancellor could not bring before this Committee any other sort of Budget than a Budget which increased taxation. Our foreign creditors demand a degree of deflation, but it is very dubious whether the degree of deflation which has been imposed by this Budget—and we should not allow the novelty of the manner in which it has been imposed to hide from us the extent and gravity of the deflation which has been proposed—is necessary at the present time. Economics is an inexact science, but there are many indications now that the economy is already on the turn down, and the grave risk which the Chancellor has taken is that he may be turning what is already the beginnings of a recession into a major slump. Time alone will show whether his judgment on the amount of extra taxation he has thought necessary to impose is justified.
At the moment the problems of the British economy are threefold. We all have our trinities. My trinity differs from that of the Chancellor of the Exchequer. I would put my first aim as the need to right the balance of payments. I believe our second aim should be to increase our competitiveness at home and so improve our competitive position in trade abroad. Thirdly—and this is most important: I

put these aims in the ecclesiastical order of precedence, where the greatest comes at the end—we must achieve and sustain a prolonged and even period of growth. I fear that, far from moving forward to these objectives, this Budget does nothing to make them easier of achievement, and in a number of ways makes it more difficult.
Our balance of payments problem was stressed by the Chancellor, and it is, indeed, intractable, but it is certainly one which should not be beyond the scope of our economy, given good management, to cope with. What, after all, are we asking for? We are asking for an increase of £300 mililon in exports from a country which has a national income of £25,000 million. That is not an effort which should be beyond the capacities of our people.
Unfortunately, the increased taxation in this Budget will have exactly the opposite effect. It is liable to have some marginal effect on our import bill, but, by pushing up costs in Britain, it will make it much more difficult for us to export. The estimate the Chancellor makes of the yield of the new tax, the Selective Employment Tax, is £240 million, but we must also remember that there is an increased load of taxation coming from the Corporation Tax, which has been put at 40 per cent. There has been so much speculation about a higher rate of tax that psychologically this has been greeted with some relief, but if this is psychologically justified it is certainly not statistically nor economically justified. It is placing a much heavier burden of taxation on industry as a whole than was imposed equivalently by the previous system of taxation. This will hamper us in the export markets of the world. This indiscriminate increase in taxation will hinder us abroad. It is also a further obstacle, erected by the Government themselves, to growth at home.
Already, in two Budgets, the Government have raised taxation by nearly £600 million. Now we have a third instalment of this unholy trinity, as opposed to the pious aspirations of the Chancellor. He has now probably imposed an increase in taxation of another £300 million. This is a very sorry record indeed, and it contrasts sharply with that of Conservative Governments who, in Budget after Budget, in situations frequently of


economic difficulty, managed to reduce taxation. We have been spared a rise in Income Tax in this Budget, but let us not forget the achievement of previous Conservative Governments in getting the standard rate of tax down from 9s. 6d. to 7s. 9d. Although this Government in this Budget have paused, in previous Budgets they started the move upwards to a penal level of taxation once again.
Another criticism I would make of the proposals in this Budget affects not income but capital, the provisions governing capital investment in the sterling area. First of all, the effect of this must be to weaken the importance of the sterling area and so indirectly weaken sterling. Secondly, I have the gravest doubts about whether this voluntary scheme which has been put forward by the Government will work. After all, why should people co-operate? This is only a form of blackmail. The threat is, "If you do not do this voluntarily you will have to do it compulsorily".
Why should a man not dispose of his money as he wishes if the law allows him to do so? Why should the Government presume to make a claim on the way people invest their money in order to help the Government out of a hole in which they have got themselves? If the Government think that it is in the national interest to restrict sterling area investment, surely the correct course is to do so by law. The great risk which they are taking by adopting this policy is that they will not stem the flow of capital to the sterling area. Rather, they will encourage it, because people will take the opportunity to invest their money freely while they can.
The matter for the greatest regret in this Budget is the lack of positive measures to make our economy more competitive and to get the economic growth, which has virtually stopped, going again. This is the Chancellor's second objective. I believe that it should be the first. I believe that it is the central problem of our economy. Economists differ about why our rate of growth has been slower than that of equivalent countries, which it has been for a long time. I believe that a high degree of responsibility must be placed on the policy of "stop-go" which undermines investment confidence and so leads to the possibility of only a slow rate of

economic growth. But if that is the effect of the policy of "stop-go", what will be the effect of the policy of "stop" with no "go", which is all that we have had so far from the Government?
For all the influence which the Department of Economic Affairs has had on the Budget, it might as well not exist. This Budget finally proves the folly, which has been pointed out from this side, of dividing up the control over the economy into two empires, one dominated by the Treasury, and the other by the Department of Economic Affairs. The result of this has been that effective control of the economy has remained with the Treasury, and further it has removed from the Treasury the most influential voices arguing the case for economic growth. Their talents have been diverted to such academic exercises as the National Plan, which is now deader than the dodo. Even the First Secretary's vocal rôle has been taken over by the Prime Minister. I think in this connection of Belloc's verses on the dodo:
The voice which used to squawk and squeak
Is now forever dumb—
Yet you may see his bones and beak
All in the Mu-se-um",
which in this case is the Department of Economic Affairs, but perhaps I am being a little optimistic in thinking that the First Secretary has been silenced permanently.
It is vital in this debate that the case for expansion and economic growth should be put, and I hope that it will be put from the back benches on both sides, because our future depends on the solution of this problem. The Chancellor admitted in his speech that a major handicap to growth was the acute shortage of labour. We have a very low level of unemployment at the moment—about 1·2 per cent. This shortage has been made worse by the restrictive immigration policies of the Government, but even more important has been the shortage of new natural sources of labour within the country on which we might have drawn for new manpower to sustain economic expansion. Other countries on the Continent, such as Italy and France, have had these advantages which we do not enjoy.
In this situation, the correct and efficient use of manpower becomes a


central problem of economic management. The over-manning of British industry is widely known, and it is equally widely known that this is so because employers hold on to labour which they do not need, in times when there is a turn-down, for fear that they will not be able to get that labour back again when expansion is once more got under way. This is the most important single sphere in which effective action to stimulate growth could have been taken by the Government in the Budget. The sad thing is that the opportunity has been missed, and very badly missed indeed.
There is much to be said for a payroll tax, but a payroll tax to be effective in this situation should, first, apply to all industry, both manufacturing and service industry, without discrimination. Secondly, it should be flexible so that there is power to vary it from region to region, and it should be flexible also in relation to the sex of the employees to which it applies. What justification can there be for drawing this sharp and arbitrary distinction between service industries on the one hand, and manufacturing industries on the other, which is the essence of this Selective Employment Tax?
Does the Chancellor think that the service industries contribute nothing to our balance of payments? One example alone should suffice. The hotel industry is as important an earner of foreign currency as almost any branch of our manufacturing industry. What about banking and insurance, those two great service industries? They are making a vital contribution to solving our balance of payments problem, but these industries, with the exception of the construction industries, are not only going to be loaded with this extra taxation, but are still being deprived of the investment grants which they were denied in the last Budget. This is a particularly heavy blow to the hotel industry, which is such an important dollar earner.
What an extraordinary view is taken of the economy of Britain by this 20th century Government. They evidently believe that somehow service industries and manufacturing industries are separate in kind. That might have been true in the 18th century, although even then

one could have put up a good case against it, but it is certainly not true today, when service industries and manufacturing industries are inter-connected at so many points that the separation of them can only be for academic purposes which bear no relation to the realities of economic fact.
This tax which has been imposed on the country will do nothing to reduce over-manning in manufacturing industry, which is the very point where over-manning is at its worst. In fact, it will have the contrary result. The effect of this tax will be to encourage manfacturers to employ more people, because they are to be given an extra subsidy by the Government for every individual they employ. If we had not heard this with our own ears from the Chancellor, and read it rather hastily in the White Paper with our own eyes, we would find it hardly credible that this was seriously being put forward by the Government as a contribution to solving our economic problems. This is a case where half a loaf is very much worse than no bread at all. It would have been better to have had no payroll tax rather than this ill-thought-out and half-baked version which will make it infinitely more difficult to produce a sensible payroll tax, and which will have the most harmful effects on the economy. I hope and believe that the Opposition will relentlessly oppose this tax at every stage of the Budget.
There is a second omission in the Budget which I regret, and this concerns exports. Exports have risen but they have not risen nearly enough. The Chancellor admitted that world trade was buoyant and rising, and any increase we have had in exports so far seems to be dependent on that buoyancy of world trade. In fact, we shall shortly be faced with a threat of a rise in imports when the surcharge is removed. I am glad that the surcharge is to go, but make no mistake about it; it will call for a tremendous extra effort to raise exports. I am sorry that the opportunity was missed of giving a direct export incentive in financial terms, because that is the only effective way to increase exports. It is much more effective than any amount of exhortation, even that given at the highest level.
The third omission is the omission of any encouragement to savings. Nothing


has been done to arrest an extremely sinister movement for the future—a movement of people's private savings from long-term to short-term investment.
But the most extraordinary omission from the Budget speech is the complete lack of any forecast of the future movement of our economy, especially in relation to growth. We are entitled to ask the right hon. Gentleman what has happened to the target of 25 per cent. growth over six years which was outlined in the National Plan. Where is it now, and what has happened to the proposed 3·4 per cent. increase in output per man laid down in the Plan? There is nothing in the Budget to aid their achievement.
I agree with the Chancellor that the Budget must not be seen in isolation but must be taken into consideration in the context of our whole economic policy. What is quite clear from the Budget is that the Government are now more dependent than ever for the success of their economic objectives on the incomes policy. The Budget, by omitting to take direct action to curb the flow of imports and by creating a situation in which imports are likely to rise, makes it more essential than ever to increase our exports, and we can do that only with a successful incomes policy.
I believe in an incomes policy. It is vital for Britain—probably more vital for Britain than for any other country. But a policy which has no other backing than exhortation, even if it comes from the Prime Minister, is doomed to failure. The Chancellor admitted as much in his speech when he said that the rise in wages in 1965 was not justified by the rise in output. That will go down as one of the understatements of all time.
If the Government are to have a successful incomes policy they must do two things. First, they must enforce it in the nationalised industries, where alone they have both power and responsibility. Secondly, they must back up their incomes policy by structural and legal trade union reform. It is no good exhorting the A.E.U. to throw its rule book away; the Government should take some positive action to bring them to fling it away. I therefore regret this Budget very much, as dismal and unimaginative. It does nothing to raise industrial production; it does nothing to

increase our growth; it does nothing to increase our exports, and it does nothing to increase the competitiveness of our economy. It is a Budget which is totally irrelevant to the needs of Britain today, and I hope that it will be exposed as such to the British people in the debates which follow.

7.14 p.m.

Mr. Kenneth Lomas: I am most grateful for the opportunity once again to follow the hon. Member for Chelmsford (Mr. St. John-Stevas) in a debate in the House. I listened to his speech with great interest. I found it very much like the curate's egg—good in parts. There were many parts of it with which I agree entirely, but in other respects I felt that it was harking back to a day that I had hoped had long gone by. The hon. Member regretted the absence of Gladstonian principles in the Budget. I remind him that times have changed and that we are living in a society in which the community recognises that it has obligations to the individual, and that the relatively poor and the not too well off do not have to rely any longer on charity as they did 70 or 80 years ago.
It is right to recognise the fact that because of the developments which have been made in the last 60 years the community now has this obligation to the less fortunate. But the Chancellor is faced with this precise problem—which is his job every year—of trying to obtain the necessary revenue in order to make sure that we have the cash available to implement the social reforms which have been so long delayed and, at the same time, to make certain that he can cream off, if necessary, a certain amount of purchasing power in order to prevent an inflationary situation developing, in which there is inevitably a spiral of wages chasing prices, with all the consequences.
I agree with hon. Members on both sides who have said that the key to the problem is increased productivity, but it ill becomes hon. Members opposite to lecture us about obtaining increased productivity when during the whole of their time in office we got nothing like the increase in production that we should have had.

Sir Cyril Osborne: More than we are getting today!

Mr. Lomas: We have been in only for 18 months. If we start from a base figure and remember that we inherited a terrible mess, we realise that it is not possible to get into top gear immediately. But by the time the next election comes along in 1970 we shall find not only that we have obtained an increase of 3·8 per cent. in our production per year but have exceeded the 4 per cent. figure. It will move slowly to begin with but will accelerate and pass the target in the last two years of the National Plan.
Hon. Members on both sides of the Committee will accept many of the minor proposals in the Budget. They will welcome the very small but necessary amendment which will allow a shopkeeper to sell stamps without having to obtain a licence. This is a long overdue reform, and I see no real reason why it should not be possible for the Chancellor to examine the great bundle of possible reforms which are so overdue in taxation, and which he might have included in the Budget.
I congratulate the Chancellor. In spite of all the fears of the newspapers and of people both inside and outside the House that there would be an increase in the Purchase Tax on cars, and that the price of beer, tobacco and petrol were all going to rise, there was almost an outburst of indigation among hon. Members opposite when it was announced that that was not to happen. Hon. Members opposite were surprised, because they expected that this was the way that the situation would be dealt with. They were surprised that Income Tax was not increased. This is an indication of the fact that the Budget was conceived bearing in mind the National Plan and the objectives which have been stated time and again by the Government, of getting the country moving forward in a stabilised way, not only in respect of incomes of all kinds but of prices. That is what the Budget has sought to do. We should be very grateful not only for the small mercies but for the larger ones.
As for the Selective Employment Tax, which will occupy the House in Committee for many hours in the weeks and months ahead, there are certain dangers which I accept, and which must be studied very closely. We talk a lot about modernising industry and of re-equipping it and revitalising it. This needs to be

done. We talk about the need to encourage the mobility of labour, which must be done if the National Plan means anything. But I am worried that this tax may persuade employers to hoard labour. It may mean that they will keep more than they should, and that even those that do not now do so may be persuaded not to introduce new measures that they should be introducing, because they have the labour to get by using their old methods and techniques. This has to be watched very carefully indeed. I welcome the tax in itself because it is a new form of tax, a wider form of taxation. It will bring in £240 million. We must nevertheless watch any effect it may have on prices, although the Chancellor said that it would have an effect of no more than 1 per cent. If that is so, I think it can be absorbed by increased efficiency in industry. It can be absorbed in so many different forms.
The hon. Member for Chelmsford did not think the Government had really done anything to help in terms of exports or to restrict our imports. We have been doing this all the time in the 18 months we were in Government and we have now gone further along the road. The Chancellor this afternoon quite rightly gave an indication that the import surcharge would be coming off towards the end of the year. This, surely, is a good thing. It certainly will be welcomed in my own constituency, which has felt the effect of the surcharge on some of the goods it has to import.
It was also said this afternoon that there would be an increase in the facilities being given to exporters. This again is right. There are many industries in this country that are grateful to the Government for the Export Credit Guarantee Scheme. If this can be increased and enlarged, so much the better. When people criticise the import surcharge they should realise that it was essential because of the legacy we found when we became the Government. The Export Credit Guarantee Scheme was necessary in order to stimulate our exports and to sell our goods overseas.
There is positive proof in the Budget that the Chancellor has drawn it up with the national problems in mind. We must get out of this vicious circle of periodic crises where we have a balance of payments problem recurring every three or four years which in the past has been


solved only be creating something like 800,000 people unemployed. We want to avoid that and we have been fighting against it. This is what this Budget is designed to do—to maintain that low figures of 1·2 per cent. or 1·3 per cent. unemployment. That is what we are after when we speak of maintaining full employment.
We want at the same time to maintain a steady—not a galloping and then a full-stop and reverse—type of growth. We want a steady and sustained rate of growth in the whole of industry. This I think we have done. It is so easy to solve any balance of payment crisis or economic problems merely by applying the screw and forcing people out of work. We can reduce the purchasing power of the people quite easily in that way. We can make conditions such that they have not the money to buy goods and so cut back on demand. But that would stunt and cripple the economy and retard growth. We decided to set our face against this.
It is also the duty of the Budget and of the Labour Government to make sure that not only do we have the full employment we seek but that we increase the whole wealth of the country. We cannot do that unless we are prepared to face the fact that if we are to go on shouldering burdens which our economy cannot carry the net result will be economic bankruptcy. That is why in the Budget Statement this afternoon I was pleased to hear the Chancellor's comments on the question of our troops in Germany and that we should be relieved of some of the payments for keeping them there. I hope we shall go further in this respect. Although there has been a review of defence costs, I hope there will be a further review to see how it is possible to make certain that defence expenditure bears a realistic relation to our economy. Otherwise we shall be in trouble. There is no point in being, or attempting to be, one of the greatest military Powers in the world if the net result turns out to be economic bankruptcy.
Mention has been made by hon. Members opposite that the Budget makes no reference to the over-riding need for growth in industry. This is done in many ways, by encouraging investment, and helping to stimulate industry where we

can. There has to be an acceptance of change on the part of the manufacturer as to what he makes and where he sells it, and an acceptance of change on the part of the worker in what he produces and where. There has to be an acceptance of change on the part of the nation. There has to be a realisation that unless we change our ways we shall be stuck in the mud for ever. We on this side of the Committee recognise that without change there can be no progress.

Sir C. Osborne: Will the hon. Member tell the Committee how he would make the nation realise these brutal facts?

Mr. Lomas: I can tell the hon. Member, and if I start with him perhaps I can persuade his party and the rest of the country. One can do this, as we have been doing it, when we go to our constituencies. We have a National Plan which has been accepted by the whole House. We are encouraging co-operation with industry and the trade union movement. We are holding conversations and consultations at the highest levels with various organisations. It is up to the people who actually believe in planning to take the message back and try to get across to the general public the fact that if we do not plan we are heading for trouble.
It follows that if we accept the need for this we must think in terms of regional planning as well. This is precisely where the policy is beginning to take effect. In the regions there are planning boards and planning councils made up of individuals from all walks of life. They know the problems of the regions. Their views can be made known to the councils. It might be worth while considering having one Member of Parliament from either side of the House from the back benches to represent the views of a region on a planning council so that the views of constituents could be made known to their Members of Parliament. That is worth thinking about as a means of spreading democracy not only throughout regions but throughout the whole country.
The biggest development with which we are faced is acceptance of the need for planning. This has to be done if we are to escape from the jungle law, the free-for-all society, which many hon. Members opposite accept and desire. If


we do that, we must use the Budget with all its fiscal powers. Above all, we must get home to the people and do whatever we can about the idea of the prices and incomes policy.
I have been a trade unionist for 29 years, and I am not against the prices and incomes policy. On the contrary, I am completely in favour of it. I believe it means that we can at long last get some kind of ordered and planned growth in our policy for wages and salaries. This does not mean that those at the bottom will be tied to the existing norm of 3½ per cent. The whole policy of prices and incomes shows clearly that if wages are too low they should be allowed to go through the norm. This is why wages went up last year—because those left at the bottom were allowed to go through the norm. I accept what the hon. Member for Louth (Sir C. Osborne) said. It is easy to mouth words such as "full employment" and "stable economy", but we all have a job to do to try to spread the message that the essential need is for ordered growth.
The prices and incomes policy is not designed to retard wages; it is designed to increase the real value of wages and to stop paper increases being swallowed up. The trade union movement is a responsible organisation which is prepared to accept these things, provided that it also realises and accepts that the Chancellor by his Budget and statements is making it fair to all and that it is not merely those on one side who are asked to make sacrifices.
I am a Socialist. I have been a Socialist for a long time. Because I am a Socialist I have been accused of being starry-eyed. Perhaps I am, but at least I am not blind to the facts of life. The facts of life are that I realise, even if some of my hon. Friends on this side of the Committee do not, that we are living in a mixed economy, whether we like it or not. As long as we are living in a mixed economy we must have co-operation between industry, the trade union movement and the Government. Unless we have that, no progress can be made. I hope that we shall continue to have the support of industry and of the trade union movement.
One cannot change something overnight. It would be arrogant for any Gov-

ernment or individual to pretend that any impact that they could make could transform society within a matter of years. It is a slow and steady progress. I ask the Government, and the Chancellor in particular, to realise that what we on this side of the House want to see, what the person on the shop floor, in the distributive trades, in the hospital services, in every kind of job, want to see is a clear indication that it is not just their wages which will be affected, but that the whole range of incomes and all kinds of prices will be dealt with effectively.
This is not, perhaps the Budget which many expected. It is not, perhaps, a Budget which will make a great squeeze in any way. It is a sensible Budget which does not tamper with a lot of taxes. It is a Budget which clearly shows that we shall try to leave prices as stable as we can. This Budget is fair in the sense that it makes sure that any sector of society which has not made its contribution shall do so. I believe this will be accepted as a fair Budget. I believe it will be accepted by the trade union movement. Provided there is this essence of fairness to all sides, provided there is no interference with the right of the trade union movement to negotiate on behalf of its members, provided we also obtain the consent of industry to the efforts that we are making on its behalf as much as on our own behalf, I believe we can go forward to a better society. But there must be this positive proof.
It has been underlined that the present Government are intent on redistributing wealth, on making a society based on social justice and equal opportunity. For that reason I have pleasure in supporting what my right hon. Friend the Chancellor said, and I hope that the Budget will receive the full support of the House in the shortest possible time.

7.33 p.m.

Mr. Michael Shaw: It gives me great pleasure on my return to the House to be able to make an early intervention and, in doing so, to follow another Yorkshire Member of Parliament.
Whilst I do not want to be too controversial on this occasion, I feel bound to comment that I thought everybody realised now that the present Government did not inherit a mess when they


came into power. On the specific point of the increase in productivity, there was a productivity rise of some 5 per cent. in 1964 when we left office. What we complain of is the fact that that increase was not continued, that the economy stagnated after the run-down when the present Government's policies were put into effect.

Mr. Lomas: May I intervene? If a deficit of £800 million is not a mess, what is? The fact is that during the period that hon. Members opposite were in office production increased by only 2·3 per cent.

Mr. Shaw: It was not a mess. The hon. Gentleman should read any of my election speeches or any other election speeches made by hon. Members on this side of the Committee and he will see clearly stated the explanation of how that situation arose. The matter was under the control of my right hon. Friend the Member for Barnet (Mr. Maudling), whom I believe to be one of the most outstanding Chancellors of the Exchequer that this country has had for a long time. During his period of office he was trying to do something that many Chancellors have tried to do, namely, to get out of this permanent "stop-go" policy, a very difficult thing to do. Difficult though it was, I believe my right hon. Friend had a fair chance of success with his policies. Alas, due to our failure to get back into power we shall never know whether he would have succeeded, but I certainly believe that we stood a better chance of progress with his policies than we do with the policies that succeeded him.
I should like to pay tribute to my predecessor, Sir Alexander Spearman, who served as Member for Scarborough and Whitby for nearly 25 years and who during that time earned not only the affection and regard of everyone in that constituency but also the greatest respect in this Chamber. It gives me added pleasure that I should be allowed to intervene in this debate in which I know, had he been here, he would have wanted to take part, for he always took the greatest possible interest in financial debates.
During my absence from the House I have been, as it were, on the receiving end of its deliberations. Frankly, the reactions that I found at that end were neither entirely flattering to the House nor encouraging for the country's future.

There was an overriding feeling of uncertainty as to what lay ahead. There was, in fact, only one common feeling held by everyone, I believe, during those 18 months, and that was a feeling that in view of the Government's narrow majority and as a General Election could not be long-delayed, nothing drastic would be done to curb demand; and whatever actions the Government took to stop the economy overheating were viewed against that background. As a result, I believe that demand kept up, that wage claims were made and won on the basis of a continuing scarcity of labour and that they were accepted often too easily by industry because the demand was such that costs were not of the first importance.
As a practising accountant, may I say that quite apart from their merits or otherwise, it was a mistake to push through in one Finance Act two such complicated measures as the Corporation Tax and the Capital Gains Tax at one and the same time. I hope that there is no tendency to underestimate the tremendous difficulties and uncertainties that exist both in the Inland Revenue and among the staffs of practising accountants throughout the country. Take personal Income Tax, for example. The forms have now come out and most of them have been pretty hastily forwarded to the accountants' offices. These will present a tremendous headache to all professional advisers as well as to Inland Revenue staff.
I hope that we shall be able to do a considerable amount during the passage of the next Finance Bill to alleviate some of the anomalies and difficulties that are presented to us. But it is not only the difficulties and doubts that are the problem. The problem also is the size of the task that is involved in working out all these computations. The size of this task means more skilled labour, and the problem is where to get it. There will be great difficulties both in accountants' offices and in the Inland Revenue in having the work done competently and fairly so that justice is done.
Whilst on the Capital Gains Tax, no one can now believe that any layman has the slightest hope of making an accurate return of his transactions in any year. While declaring an interest in this matter, as, obviously, I do, I submit that from


now on professional fees for establishing profits and losses are as necessary an expense in the acquisition or disposal of property as are the charges of stock-brokers or auctioneers. Believe me, I can give fair warning that these charges will not be light. From the few returns I have seen already, and the attempts made in them to provide all the answers, it is clear that the costs involved for people as a charge on their income must be considerable if it is to be discovered whether there is any claim or liability. I am sure that these costs are absolutely essential, and it is in the interests of Inland Revenue officers themselves that they should be met and, indeed, encouraged to be met so that proper returns can be made and the work at the other end be kept to a minimum.
Next, I make a point not from the accountancy point of view but from the businessman's point of view. For well over a year now, there has continued to be a high level of demand and at the same time there has been a continued credit squeeze of varying degrees of intensity, at times a degree tougher than I can recollect on any other occasion. Yet I believe that the credit squeeze has had far less effect than was expected. I do not pretend that there has been no effect at all—obviously, that is not true, it has had an effect—but I consider that it has had less effect than expected. The reason is that it is the job of industry to satisfy demand and, if demand exists, as it did throughout this period, industry will do everything in its power to meet it. Not only was industry willing to pay higher rates of interest for capital—and why should it not, because cost was not paramount and sales were easy?—but in large sections of industry another means of financing operations came into being and people stopped paying each other for a month or more. In many sections of industry, everyone took longer to pay and took greater credit.
It would be a very interesting exercise for the record to find out by how much the objects of the credit squeeze were vitiated by the size of the additional credit created by this extension of credit throughout whole industries. I can think of one example. A factory working flat out for a month at the beginning of this year did not get in enough to pay the wages in that month. Of course, it was an

exceptional month because taxes had to be paid and so on, but my guess is that this went on in many instances in various parts of industry.
A continued credit squeeze, in so far as it is successful, is damaging if applied too long because it falsifies the normal conditions of credit upon which industry relies. What is more, established firms which, generally speaking, have their credit facilities well organised and, usually, well in excess of their normal requirements, are all right, but the people who are hardest hit are the most vigorous, the growing enterprises. The growing firms are the ones which, as they take each step forward, rely, possibly quite temporarily, on banks and such institutions for the additional capital to get them over the hump of each advance. If for a long period of time we stifle the growth of these new and energetic firms, we stifle the very people who put competition into industry, who get after the heels of the established firms and see that they are not too comfortable and do not have too many overheads comfortably on their shoulders. There is a very real danger if we continue the system of credit squeeze too long.
The lesson we have learnt during the past 12 months is that, if we are to take, as take we must, the heat out of the economy, then we must reduce demand both by the public in its consumer spending and by the Government in their requirements for material projects and for manpower. In other words, we cannot isolate too finely the different sections of demand. As soon as we start to do that, we get into trouble. Certainly, we cannot isolate Government expenditure because it is such a major burden upon resources.
We have now had the election, and, though I cannot say that I am very pleased about the result, it was a good thing to have it because of the uncertainty to which I have referred and the belief that no one would really grapple with the nation's problems until it was out of the way. The Government can now concentrate on governing, putting first things first. First of all must come the putting of our economy on a sound basis. We can fairly say that, from now on, right hon. Gentlemen opposite have no excuse and they will be judged by their actions, not by their words.
In my opinion this is a holding Budget. The level of taxation is too high. I can see that, because of our present situation, which is in large measure due to what has happened during the past 18 months, there is no alternative to this type of Budget, but undoubtedly the level of taxation which we are suffering now and will suffer next year is at crisis level.
Obviously, the most interesting feature of the Budget is the selective employment tax. Making notes before I heard the Chancellor this afternoon, I noted my belief that there should be some form of payroll tax if additional taxes were needed, and, therefore, without approving this particular form—one has not had a chance to study it in all its aspects—I welcome the approach that, if a tax is necessary, this type of tax has been looked at and accepted. But, if I have to accept this tax, I accept it on the condition that, when the period of crisis has been overcome and we can, as I hope, begin to reduce taxation, this type of tax will be left in force and the emphasis in reduction of taxation will be on the reduction of direct taxation, both Income Tax and Surtax.

Mr. R. E. Winterbottom: Ah.

Mr. Shaw: Ah, indeed—and high time, too.
Now, two specific points with reference to the new tax. Why has the date 5th September been chosen? I make a plea on behalf of the hotel industry that if this tax is to be introduced, it should be introduced at the end of September and not at the beginning of September. This would allow the many hotels which close down at the end of September to work out their new costings for the next season in plenty of time and they would not be tied up in the new tax in the last month for which they remain open and are busy.
This new tax will bear very hardly upon hotels. I regret that the new investment grants will not apply to hotels. I regret the abolition of the investment allowances. That decision shows a weakness in the Government's attitude towards taxation. At every stage, whatever they do, whether it is theoretically advantageous or not, the result is an additional complication. One of the great virtues of the old investment allowances was that

everybody knew where they stood and what they would get, that they applied to everyone and were easy to apply and that it did not need a single additional clerk to administer that tax. Moreover, it rewarded those who were successful because it gave the allowance to them in tax relief. The allowance was given to the hotel industry, which is only now beginning to reorganise itself from its rather Victorian appearance of a few years ago.
Coming from a farming area, I cannot fail to mention the most serious difficulty of all which arises from the tax—its effect upon the farming community. The smaller farmers are finding it difficult to keep going, and the strain of keeping their working force together is very great. More and more they have to look around for ways of getting rid of one or two helpers and of relying more and more upon themselves and their wives. This tax will be a great burden to them. It is the acceptance of an immediate burden in return for a theoretical compensation at a later date, and no farmer will be particularly enthusiastic about that.
May I turn to the question of Surtax on certain dividends received from companies which have paid earlier interim dividends. May I state clearly my own philosophy on this matter? I do not believe that retrospective legislation is justified in any circumstances whatever, unless it is to right a wrong which has been inadvertently committed in the past. If it is in the nature of an additional levy or burden, it should not be allowed. In this case many thousands of shareholders are affected who had no say at all in the decision. Most of the additional dividends declared by interim dividend were declared by the boards of directors. The shareholders simply received these dirk dends, as they had every right to do, just as the directors had a right to declare these dividends as the law stood at that time. But because it has not been popular with them, hon. Members opposite propose to change the law for that year only, so that the additional dividends in the year 1965–66 may not be spread over several years, as may he done in any other year when exceptional dividends are received from a particular company. This is wrong. The action taken by those companies was legitimate and within the law. People have the right to act as


the law stands without having those actions upset by subsequent legislation.
I agree with the Chancellor that the greatest problem at the moment is how to increase productivity. During the last week we heard many speeches on this subject, which is a good thing, but we are entitled to judge the Government by their actions and not by their words. Many actions will have to be taken by the Government if we are to get the increased productivity which we all require. I cannot see the justification for the unions having different sets of law applicable to them by comparison with any other set of people in the community. Just as it is right that we should get rid of restrictions introduced in the past by industries to protect themselves—restrictions which are no longer justified—so it is right that we should apply this principle to the unions.
When Ministers are asked to intervene in wage settlements they must influence the decisions in favour of productivity. I do not say that they will not do this but we are entitled to judge them by the actions which should follow their words.

7.58 p.m.

Mr. R. E. Winterbottom: I hope that I shall not be misunderstood if I say that I am glad to see the hon. Member for Scarborough and Whitby (Mr. Michael Shaw) back in the House if only to give me the opportunity of replying to him in the debate.
I have listened with interest to the debate, and I should like to remind the Conservative Party that they were defeated in the General Election and that they must realise that, together with the Liberal Party, they form a minority in the House. This is a fact which they must not forget when giving advice to the Government because they must leave it as advice and not give it in the way in which they have given it for so long—as if they own the roost.
The hon. Member believes that professional fees are necessary. I will not question that argument now but I will relate it to another subject which I shall introduce, and I hope that he will permit me to leave it till then.
He spoke about Capital Gains Tax and Corporation Tax. We could not

have had one without the other. We could not have had Capital Gains Tax alone or Corporation Tax alone. These two taxes were introduced together as part and parcel of a tax system to touch the individual and to touch the corporate body.
Many hon. Members opposite have spoken about the effect of the Selective Employment Tax on agriculture. May I remind them that before the election the Conservative Party were advocating a new system of agricultural pricing to bring their policy into line with the agricultural policy of the Common Market. The hon. Member has forgotten that.

Mr. Shaw: No.

Mr. Winterbottom: I should like farmers to know that the Common Market agricultural pricing policy advocated by the Conservatives would have meant a reduction in the subsidies which would have affected the economy of every farm much more than will the Selective Employment Tax suggested by the Chancellor.

Mr. Hector Monro: rose——

Mr. Winterbottom: I must get on a little further with my speech before I give way.
The Chancellor of the Exchequer has been adventurous in his introduction of the Selective Employment Tax and has taken a bold step from the known to the seemingly unknown. He has faced a dangerous situation with the greatest courage. I will argue for the tax before I put some points about it which should be considered.
One important argument in support of the Selective Employment Tax—I may not have my figures exactly right; they are only general figures—is that when I was a young man the productive workers in this country were in a ratio of one to eight compared with those in the service industries. Today that ratio is one to 21. In the industrial life of Britain the service industries have grown out of all proportion to the productive industry, and somehow something must be done by the Government to put that right. We shall never build up the export trade with barristers, lawyers, doctors, and, with respect to the hon. Member for Scarborough and Whitby, with accountants. We shall build up the export trade


of the country with the products of our looms and factories and our productive workers.

Mr. Shaw: That makes an even greater case for reducing the complex laws which oblige us to have so many accountants.

Mr. Winterbottom: Let me finish my argument. The hon. Member should not try to argue my case for me. I will do it in my own little tin-pot way. It may be inadequate, but at any rate it is done sincerely, and if I did it in the way in which the hon. Member wants me to do it, it might not appear to be quite so sincere.
I have watched this revolution almost the whole of my life. Distribution is one of the greatest service industries in the country. If distribution is out of line with production, the whole of the economy suffers. This adventurous move by the Chancellor has forced the distributive trades to a consideration of the fundamentally revolutionary nature and implications of these proposals.
On the face of it, it appears that this Selective Employment Tax will increase prices. At first glance, it seems bound to do so. Co-operative societies have been mentioned, and I should like to give some facts about one. With 1,000 employees, in a period of 12 months it will have to pay between £20,000 and £25,000. Its dividends are 7d. in the £. Its shops are mainly grocery shops on a 16 per cent. margin, and this means that about £40 a week will have to go on overheads and the tax will mean an increase of about 4½ per cent. in those overheads. On the face of it, that will reduce the dividend from 7d. to 4d., a crippling blow.
But let us consider the other side of the coin, the necessity for reorganisation of distribution by that society. The immediate problem can be overcome by wise buying. Some of the multiple grocery establishments with a wages bill of 14 per cent. of turnover and a 16 per cent. margin of gross profit still find themselves able to pay dividends to shareholders, all because of wise buying. Over these many years, while prices have been on the increase, it has been comparatively easy to meet the difference in gross profit by wise buying. If the Government are successful in stabilising

price levels, that avenue will be closed and another will have to be found.
The subject of prices in relation to this new tax therefore assumes the highest importance and if the Prices and Incomes Board is to be successful it will have to examine prices much more intensely than it is now studying the specific issues referred to it. It will have to examine the margins of all commodities and to fix the margins in all commodities. It will have to recommend to the Government that certain things should take place to reduce price levels, because some price levels can be reduced—and I refer now to agriculture.
The subsidy paid for fat cattle is very high in relation to the retail price of meat. The difference between the auction price of meat and the price of meat on the butcher's block is comparable with the return of 1s. 6d. for a dozen cabbages to the farmer and the Is. a cabbage which has to be paid in the shops. The reason for the discrepancy in the two prices of meat is the same as that for the cabbage. There are those who toil not, neither do they spin, and yet who make a profit so that it can be said of them,
Solomon in all his glory was not arrayed like one of these.
The Prices and Incomes Board will have to examine very closely the whole range of commodities which appear in the food shops.

Captain W. Elliot: The hon. Gentleman spoke earlier about the service tax "apparently" increasing prices and then seemed to argue that it would not do so for co-operative societies. He has now quoted what the farmer gets and what the retail price is. Surely the reason for the difference is the cost of distribution which the tax will specifically increase.

Mr. Winterbottom: No. I am saying that if the varying prices of commodities are examined from source to final point of sale, it will be found that there are many examples of expense which can be eliminated. For instance, in the distribution of meat there are five distinct types of person who receive a subsidy for every pound of meat which comes under the auctioneer's hammer, and some of those people never handle or see the meat for the commission which they receive, and yet that commission is reflected


in the price of meat on the butcher's block.
If those costs were eliminated, the saving would more than compensate for the new tax. The Selective Employment Tax will cause a great deal of heartburning and searching in the distributive trades, and I congratulate my right hon. Friend on introducing it at this stage in the difficult economic conditions through which we are passing, for I believe that ultimately it will not only stabilise, but lower price levels.
Just as I want price levels to be examined, so I believe that we have to do something about wages, a subject mentioned by many hon. Members today. When we discuss the new tax, we discuss those in the service industries who today take more out of the economy than those who produce the wealth on which the country depends. One of the problems of the Prices and Incomes Board is the fact that there are so many people who, despite what some people say, receive what can be described only as starvation wages.
There are some 90 wages councils in the country, 75 per cent. of them producing wages of less than £10 a week for men on a 47-hour week. About 60 per cent. of them provide wages of less than £6 a week for women. What is the value to society of those who are getting £6 a week, or less than £10 a week, as against the value of the accountant, the lawyer or the doctor? Just as we have an examination of prices, so we should have something in the nature of job evaluation in order to find some relativity between various jobs, and perhaps so as to fix a minimum rate below which no one could fall.
These are important issues and they cannot be approached as the hon. Member for Scarborough and Whitby approached them. The hon. Gentleman praised Gladstone. To me, the heritage of Gladstone is that I went to work as a cotton worker at 12 for 2s. 6d. a week. To me, Gladstone means the cotton mills of Lancashire and the dirty, mean, terraced houses without baths and without hot water and with nowhere for children to play. "Thank heavens", it was said, "they did not need to play, because they could be sent to work". That was Gladstone.
I hope that this is a 20th century Government. I hope that it has a 21st century outlook, not the outlook of Gladstone, but the outlook which sees in this problem of Britain a problem which is a whole, which takes industry and commerce and the problems of education and wages and exports as a whole and relates one to the other and out of that relativity finds justice for all. I do not object to the new tax. It has made me think much more clearly today than I have done for many a long day in the past.

8.20 p.m.

Mr. Patrick Wolrige-Gordon: I hope that the hon. Gentleman the Member for Sheffield, Brightside (Mr. Winterbottom) will forgive me if I do not follow him too closely in what he has said in the course of his interesting and long speech, which was concentrated mainly on distribution and the effect of this new tax on distribution services. I would like to say a word or two about the Budget. The Budget will be judged on two counts. First, on the extent to which it affects everyone's pocket and area, and secondly, on the extent to which it points the way for getting our country out of its present difficulties. I will deal with the first point quite briefly. I imagine that reactions will be as various as every citizen. My own comment would be that this further rise in taxation, which is what we have, comes ill from hon. Members opposite who, for as long as I have been in Parliament at any rate, have always argued that they could pay for their programmes out of increased production without having recourse to increased taxation.
I want to deal more fully with the effects of this selective tax on the areas. I was impressed, as I imagine many of my hon. and right hon. Friends were, by the Chancellor's statement and by the figures he gave by way of comparison between the service and manufacturing industries. However, 60 per cent. of Scotland's population is engaged in the service industries and last year we had the highest rate of emigration from our country ever. In my own part of the country, in the north-east of Scotland, the service industries are the principal source of employment for our population.
Whatever the Government may say about their regional development policies, let there be no doubt that this tax is


inevitably going to make life more difficult for such areas as mine, in spite of the fact that they are already development areas. A move of this sort only underlines what I think is going to become increasingly more important and urgent, namely, that the time has come to consider seriously some kind of differential tax system for such areas. At present one has industries in those areas which cannot pay the same wage as industries in other parts of the country.
A lower wage rate makes a strong disincentive for the local people to stay and develop the local economy. I see no reason why the Government of the day should not provide the circumstances in which any industry, manufacturing or service, could pay a uniform rate of wage throughout the country.
The other serious impact of this measure concerns agriculture, which is the largest industry in Scotland. Once again the Government are condemning agriculture to live under a question mark. I hope that we shall hear in the course of this debate what is going to be the effect upon agriculture of this new tax. I do not believe that any farmers will welcome this formula of organising it in some way through the Agricultural Price Review machinery. I should like to ask why not have a perfectly straightforward rebate system for the agriculture industry?

Mr. Peter Mills: Would my hon. Friend not agree that it is very rare that we ever get full recoupment at the Annual Price Review?

Mr. Wolrige-Gordon: That is true, and it is the reason why the farmers would be so concerned by the Chancellor's statement that in some vague way they were going to be looked after in the Price Review.
I want to deal with the second part of the judgment upon the Budget, that is whether it points the way to getting the country out of its present difficulties. This is a very important point and one upon which everyone in this House would wish the Government success. If we are to succeed in solving our present economic difficulties, we have to depend upon the voluntary effort of all the people. To that extent any increase in taxation makes that voluntary effort on the part of the people for the sake of the Government that much more difficult.
To a certain extent the Chancellor is responsible for his own misfortunes by his apparent determination to concentrate upon economics alone. We have heard strong speeches last weekend from two Treasury Ministers, talking about "The age of grab." They described a very selfish country. If they were right, which is certainly possible, then to concentrate purely on the economic situation is to concentrate and to seek to cure merely the symptoms and not the disease. If the Chancellor is saying to the nation in this Budget "Come on, let's now proceed to solve our economic difficulties," I believe the average reaction that he will get is, "Why?" That is the normal British reaction to every sort of crisis particularly a financial crisis such as we are now in and which is still disguised from the great majority of our people.
That is the normal British reaction. It is a very phlegmatic reaction and correctly led it leads to a steadiness and composure of great strength. Misused and misled it means finding ourselves in warfare without weapons, in economics certainly without work, wealth and welfare. I imagine that everyone agrees with the Chancellor that the Budget is an important weapon but that it is just one weapon used to get our economic situation corrected. He and the Government are also responsible for providing the kind of leadership which the people will see and respond to and work for in order to put things right.
The goals set by the Government are so small. Their line is "Raise our production by ¾per cent, and all will be well". In my experience, given modern methods and the will, the enthusiasm, the dash and energy and the dare, it is possible for production to rise in our modern 20th century Britain, in specific industries, by anything from 20 per cent. to 30 per cent. a year. Two things are needed—the incentive to do the job and the necessary team work. I do not think that self-interest is an adequate incentive. Men do not live by bread alone and there is a need for new horizons to make efficiency and hard work acceptable once more in Britain. We did it in the war when there was an obvious battle to be won. Are there no great aims left? We have not far to look.
The world is in danger of falling to bits. Humanity has to fashion a new age


quickly, where greed must be replaced by care and selfishness by sharing. If we decided to do these things, they could mean a lot for Britain. First, they could mean the assumption of responsibility for a task so big that we would not have time to grumble if we thought that somebody was better off than someone else. And we would begin to see how out of place such grumbles are when we think of the difference between how we live and how millions of our fellow citizens of this world live, in terrible conditions.
For our industry, it would mean beginning to meet the world's needs for its products as well as making profit the aim of that industry. It would mean, in other words, a redirection of motive.
For our politicians it would mean considerable change I never understand why, with all this talk about modernising Britain, modernising industry and modernising Parliament, so very little attention is paid to modernising the British. It is a field in which Parliamentarians might, with justice, be expected to give a lead. It is a gigantic task, but this is an age of giant problems as well as of great opportunities. I believe that it is by dealing with big issues that Britain will solve her small ones, never the other way about.

8.30 p.m.

Dr. Hugh Gray: I am sorry that my hon. Friend the Member for Sheffield, Brightside (Mr. Winterbottom) attacks professional men. Just before the last General Election, the chairman of the local Conservative Party said that intellectuals were not wanted in Great Yarmouth. Fortunately, from my point of view, he was proved wrong. My opponent recently said that he thought this country was being ruined by Fabians and intellectuals. Workers by hand and brain are equally important for the well-being of this country, not least for earning it invisible exports.
A few years ago, just after Mr. Peter Thorneycroft resigned as Chancellor of the Exchequer, he came to the London School of Economics to speak to the students' union. After he had spoken, he was congratulated by a student speaker for having had the courage of Professor Paish's convictions. Those days are long past. Today, Oxford has

succeeded London in its influence on the Exchequer, and a Socialist Chancellor of the Exchequer has succeeded a Conservative one. Both changes are important for the future, particularly the latter. Underlying the themes of a stable £, growth and expansion, there is a deep Socialist concern for redistribution of wealth. We on this side of the House stand for this because we wish, in accordance with our values, to see greater social and economic equality achieved. The Budget was an exciting one. It suggested new means of raising money and new means of dealing with the question of redistributing wealth. Because some of the proposals are new, they cause some apprehension, as indeed all new proposals must.
As a new Member making my second speech, I should like to say what a great privilege it was to be here and to listen to such speeches as those we heard today from my right hon. Friend the Chancellor of the Exchequer and the Leader of the Opposition. The right hon. Gentleman made a point about the tourist industry. I believe that he was thinking of foreign tourists coming to this country. I immediately thought of the town of Yarmouth, which is a seaside town flooded mainly by internal tourists during the season. It is true that we also have foreign tourists from Holland, and their number will increase when, as I believe will happen soon, we go into the Common Market. The new pay-roll tax, which will hit the service industries, will cause great apprehension to all hotel owners and boarding house keepers.
I support a remark made by an hon. Member opposite. He said that he hoped that the Chancellor of the Exchequer would reconsider the vesting date. It is most important for hotel keepers and boarding house keepers to get through this season. If my right hon. Friend could put the vesting date back a month, it would be a great help. The interests of the town of Great Yarmouth may be hit. I hope to receive reassurance from the Government spokesman on this point because in the winter unemployment in Yarmouth is high. Many people hope to earn enough money in the summer to get them by during the winter.
Unfortunately, the structural changes which are foreseen by the Chancellor of the Exchequer for the whole country have not yet taken place in East Anglia,


particularly in Yarmouth. I foresee that the claim of East Anglia to be considered as a special development area will be even stronger after this change has been introduced. But I may be wrong. I deeply hope so. Apart from the town of Yarmouth, my constituency is one-third rural. Like my hon. Friends and many hon. Members opposite, I immediately thought of the effect of the tax on agricultural workers and small farmers. I hoped sincerely that they would be cushioned in some way.
A change of this kind is rather like dropping a stone into a puddle. Some of its repercussions are extremely difficult to visualise. One will concern transport. Garages provide service. Possibly the cost of repairs will go up. In my constituency we live under the threat of rail closures and the curtailment of services to many villages which have no bus service. Today I received a letter from a lady, a Roman Catholic, who said that in future when services are curtailed on Sundays she would no longer be able to go to church. If rail closures take place, one expects that bus services will be provided. The Labour Party stands for an integrated transport system for the whole country and for East Anglia. We look to that. But some people may have to buy motor cars, in which case they will have to pay for repairs. I hope that when the Government spokesman replies, he will deal with these repercussions, with the problem of towns which rely upon the holiday trade and with the situation of agricultural workers.
This Budget is a forward-looking Budget, a thrusting Budget, a Socialist Budget. I heard it with great pleasure but with some apprehensions. I am sure that it is a Budget that looks to the changing structure of the country. Our Government are a modernising Government, a Government who will take the country into Europe. They are a Government of a long future, and I suggest that the Budget is one step in the long right direction.

8.39 p.m.

Sir Tatton Brinton: I would like to confine my speech, since other hon. Members have covered various aspects of the Budget, to some comments about the Selective Employment Tax. I see from the White Paper, which I have

not had time thoroughly to read, that the objectives are first to
improve the structure of the tax system by redressing the balance between services and manufacturing.
It seems to me that a basic fallacy is implied in that phraseology, because in the end the people who pay taxes are individuals. They are the source of all effort and of all wealth through the work they do, and in the end it is they who have to suffer tax in one form or another, whether directly or indirectly.
What the Government are saying in that sentence is not that they are redressing the balance between a service or services and manufacturing industry. They are saying that they will make the products of service industries less attractive, because they will be taxed more than they were before. That is fairly obvious. To that extent, there are various kinds of service industries. First, one has the real service industries such as catering, the distribution of food and, perhaps, laundries—a number of service industries might occur to one—in which there is a very small tax content. The greater part of the service industries, however—and I speak here of the true service industries, and not as these industries have been defined today by the Chancellor of the Exchequer—are in the distribution of goods which at various stages in their manufacture bear a certain amount of tax, either as Purchase Tax, Excise duty or in other ways.
To the person who purchases goods at the end of the process, it does not matter whether the tax falls at the manufacturing or the distributive stage. He still has to pay it in the price of the article. It is naive in the extreme to suggest that taxation can be imposed upon the service industries without its ultimately falling upon the pocket of the consumer. That is what must happen in the long run. The consumer is the ultimate source of the taxation which the Chancellor collects. It does not seem to me, therefore, that there is very much truth about the object of redressing the balance except in so far as this new tax will bear on various commodities which so far have largely escaped tax, mainly in food and catering.
The second object which is mentioned in the White Paper is
encouraging economy in the use of labour in services and thereby making more labour


available for the expansion of manufacturing industry.
The question has already been asked whether, if one were looking round the country to find where there is spare labour, it would be in the service industries that one would look first. I do not think that I would. There is greater featherbedding and greater retention of unnecessary labour, for reasons which we quite understand, in the manufacturing industries than there ever is in the service industries.
What the Government are saying, therefore, is not that they are trying to squeeze spare labour from the service industries and get it into making some form of practical use or exportable value. They are saying that they will deliberately discourage the service industries in order to get more and more people into the factories. That is surely the truth behind this tax.
It may be that that is a desirable objective, but there is no greater fallacy in life than to suppose that the man who manufactures a rolled steel girder is in some way morally superior and more economically and more socially desirable than the man who cooks a first-class dinner, because in the long run the man who is making the steel girder is doing so only so that in the ultimate somebody may enjoy a better meal, wear a better suit, watch a better television set or drive a better motor car. That is what it is all about. The whole process is designed for human satisfaction and nothing else. It is not an end in itself. Therefore, do not let us have any kind of moral judgment about what people should be doing. In present circumstances, we must take account of what they are doing because of our acute economic crisis outside.
The point has been made that many of our service industries are of considerable importance to us. In the short time since the Chancellor spoke, I have not been able to discover the value, for instance, of the tourist industry in terms of foreign exchange, but it must be one of our foremost industries. In neglecting such industries, we are neglecting an export industry.
Several of my hon. Friends have mentioned agriculture. I find it extraordinary that the Chancellor should classify this

great productive industry as a service industry or that he should ever have considered it as such. It is an industry the efficiency of which has increased by more than that of practically any manufacturing industry over the last few years. It is now treated as if it were an industry from which further labour should be squeezed for the benefit of people who produce manufactured products. This is extraordinary. I can only hope that the Chancellor will reconsider it, because to place a further burden on agriculture, which under the existing system of subsidies can be covered in the long run only by a further subsidy from the public purse, is both unnecessary and illogical.
Even if we accept the desirability of the objectives of this tax, I suggest that it is still the wrong tax to have imposed. I accept, as many of my hon. Friends have done, that there is a strong case for a turnover tax. Whether it should differentiate between one form of enterprise and another is a separate question. For the sake of my argument, however, let us accept that we need the power to differentiate between one enterprise and another.
Why have not the Government considered—or perhaps they have considered and rejected—the possibility of a value-added tax? We have been told on previous occasions, not only by Socialist Chancellors, but by at least one Conservative Chancellor, that there is good reason why a value-added tax does not work. It works in other countries, but apparently it would be difficult to work here. Yet the Government are imposing a form of pay-roll tax which could perfectly well have been a value-added tax, in my belief. What are the advantages of a value-added tax?
First, the Government could if they wished differentiate between one industry and another by varying the rates to be applied. They could differentiate between one specific enterprise and another in the same way as they now propose to differentiate between service and manufacturing industries. Secondly, the tax would be more closely related to the total size of a business, very nearly as closely related to its pay roll and more closely related to its profitability than the proposed new tax will be. The Chancellor's new tax is a blunt instrument. It is "so much a nob". It will not matter whether


a man is earning £50 or £5 a week—he will cost the same.
Thirdly, the value-added tax would have a vital bearing on exports because it would be remittable. Under the terms of international agreements it can be remitted on exports. This useful tax is already in existence in France. Why is it not being used for the purpose for which the Government are using their Selective Employment Tax? It could have been made selective if the Government wished, although I have serious doubts about selectivity.
In applying the principle of selectivity, what sort of omelette will the Government be creating? Is this to be a situation similar to that of the Purchase Tax situation, where one used to pay 20 per cent. on a match box but only 10 per cent. on a pill box, so that match boxes were sold as pill boxes and vice versa? My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) had many years of fun out of these anomalies.
What sort of situation will we get into? When will an industry be a service and when manufacturing? There will be many marginal cases very difficult to define. What will be done if a manufacturer, discovering the cost of pay-roll tax on, for example, those employed to run the canteen for him, instead of employing outside contractors, which is a common practice, decides to run his own canteen? Are those workers then manufacturing or service?
Will a firm have to list every single person in a factory employing, say, between 500 and 20,000 people, dividing exactly the sort of jobs the people do, whether manufacturing or service, or will the process begin with the definition of the enterprise? What about enterprises with a little bit of both manufacturing and service? What about the man who makes and sells goods in his own shop? Is he manufacturing or distributing? How easy will it be to define these marginal differences?
There is a further danger inherent in this differentiation. We have already heard how, in the construction industry, as a result of the high turnover, there has grown up the practice in many parts of the country of people contracting with an employer instead of becoming proper employees. They are self-employed and

contract their labour to a construction concern. Will we see more of this happening? Will a man self-employed and selling his labour as a free agent on an hourly or perhaps weekly basis attract this tax? Are we to create the awkward situation where people are constantly trying to find loopholes to escape a heavy tax which, in one capacity, they will have to pay but in another capacity will not? That is the danger of differentiation. If everyone across the board had to pay there would not be this danger but the differentiation will cause trouble.
I hope that the Treasury Ministers during the debate will give us their ideas about how this is to work, because it seems to me that, in principle, there are dangers in it. I would still plead for the Government to think very carefully about the value-added tax instead.

8.55 p.m.

Mr. R. R. Cant: I am sorry to inflict yet another maiden speech on the Committee, but in a sense I am happy to be able to make mine when the benches are so empty because this gives me perhaps a little false courage. I represent Stoke-on-Trent, Central and already the House has heard the maiden speech from my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley), who gave a vivid word portrait of this city which produces so much of the world's most famous pottery. Names like Wedgwood, Minton and Doulton are known internationally. I will not add to that description.
I have the very great honour of following Sir Barnett Stross and I think that both sides of the House would agree that he established himself in the hearts of everybody and made a tremendous contribution to the work of the House in the many years he was a Member. I assure hon. Members that he did this equally in Stoke-on-Trent where he not only became the medical man to a large number of lay people but the medical adviser to the pottery and mining industries and became very intimately associated with them. Therefore, in a sense I have the great advantage of basking in a little of reflected glory from Sir Barnett Stross, but at the same time I am very conscious of the very high standards which he set me, and I can only hope that I can in some measure live up to them.
My own rather esoteric profession, I may say in the context of this debate, is that of monetary economics, and it is in this that I hope while a Member of the Committee to make some sort of contribution. I should like to distinguish, in case the distinction is not already clear, between the financial economist and the monetary economist. I gather that the financial economist is one who engages in the field of income and capital appreciation, and is usually a fairly wealthy man, whereas the monetary economist is a man who knows rather more about money than the people who actually possess it.
I would add, in case there are too many misgivings, that I received my basic training in this very important subject of economics at a time when, on the whole, economics was still written in the Queen's English—more often by Scotsmen—and when perhaps we were in a period of transition when it was coming to be written by Hungarians in algebra. I am not referring to the two distinguished gentlemen whose names appear in the newspapers from time to time. I am referring, of course, to their predecessors, people like Hayek, Kalecki, and others. They have subsequently emigrated, and I do not know whether that will happen again.
What I should like to do in the few minutes remaining to me is not to talk specifically about the provisions of the Budget, because I think it would be a bit presumptous of me to do that, but just to take up two points which I should like to emphasise, two points which I think are extremely controversial and non-controversial at the same time.
The first is one made by an hon. Member opposite earlier today, that we as a nation are rapidly coming to the point where we are suffering from a sort of economic hypochondria. We have got ourselves into a situation where we become so mesmerised by this sort of average balance of payments deficit of £300 million that we do not get this into the correct perspective. I should like to correct a figure given by the hon. Member opposite. The gross national product is something like £33,000 million. I think that when the history of this post-war period is written, from whichever political point of view, this will be seen as some-

thing of a malaise, because we surely should be able so to arrange our affairs that we can do something about this when our annual production of goods and services is so very large.
That is point number one. The second point is a bit more controversial. I suffer a little bit here from an anti-climax, because the Chancellor is obviously moving in this direction, but I am glad we are coming to the point of view that fiscal policy is a relatively unimportant thing. We have had Mr. Gladstone mentioned today, and we recollect his Budget of £63 million, I think it was, about a century ago—a somewhat different order of things from that today.
Following the work of that great Liberal, Lord Keynes, we entered a period in which everybody came to believe that fiscal policy was a really decisive instrument of economic matters. I think that this is completely incorrect. I do not want to be accused of too much heresy, but if we study Budgets from 1951 to 1965, and if we look at the sort of what some people irreverently call ritual surplus which the Chancellor estimates he will get, and his actual outturn, we see that in respect of each year there is an almost perfect negative correlation. In other words, if the Chancellor said, "I am going to get a big surplus", he got a small one, and if he said, "I am going to get a small one", he got a big one. One cannot regard as being scientific anything that behaves in that sort of peculiar fashion.
The other point is simply that we must surely have been forced into the belief that fiscal policy just does not work. I think that there is an enormous amount of evidence that even though the Chancellor may think, "I am going to cut aggregate demand within the community by a certain order", and even if he manages this, it has very little effect at all. If we were to ask for an estimate of the cut in aggregate demand imposed by the present Chancellor since October, 1964, we would find that it is without precedent in our financial history, and I think that the result of this in terms of cuts in demand on the economy is that there has been no result at all.
I cannot pursue this, but we have now reached a point with fiscal policy where we have to accept that there are so many


factors in the situation outside the Budget which can supplement particularly consumer demand that the Chancellor's efforts are often without avail, just as we have come to see in monetary policy that there are so many sources of credit from financial intermediaries that increasing the Bank Rate and putting the screw on bank advances renders even monetary policy almost impotent.
If we look at this tremendous work by Mr. Dow on "The Management of the Economy", we find that he argues—I shall not quote at this stage because my time has run out—not only that the fiscal policy has not been a contributory factor to economic stability, but argues forcefully that it has created instability, and I am glad that the Chancellor today attempted to put fiscal policy in something of its true perspective.
My other point which makes its contribution to this sense of anticlimax which I feel is that when I asked myself, "What should a Budget do?" my note on this piece of paper was quite simply that I should recommend to the Chancellor—very presumptuously at this stage of my Parliamentary career—that he should use the Budget as a sort of selective financial mechanism, and my only recommendation was that he should impose a payroll tax.
I thank the Committee for listening to my maiden speech. I hope that in the years to come I can make some sort of contribution which will commend itself to the House, and that my general conduct in the House will lead me to earn something of the respect which my predecessor, Sir Barnet Stross, obviously enjoyed.

9.5 p.m.

Sir Cyril Osborne: It is my pleasant duty to congratulate the hon. Member for Stoke-on-Trent, Central (Mr. Cant) on a most agreeable maiden speech. He has just said that he hoped that he would establish for himself the same good will that his predecessor earned on both sides of the House for many years. If he continues in the moderate and reasonable way in which he presented his views tonight I am sure that he will earn that, and that the House will look forward to hearing him again. Having been here for 21 years, I begin to wish that I had the same ease and felicity of speech as

so many of the new and distinguished Members have shown in the last few days. The hon. Gentleman said that we were mesmerised by statistics. That is one of the occupational hazards of a budgetary debate.
I am grateful for the presence of the Chief Secretary of the Treasury, because there are one or two things that I wish to say to him. First, the Budget is not nearly as harsh as we expected—and for that we are grateful. Secondly, we all recognise that the Chancellor faces a very difficult problem, and that to the extent that both sides of the Committee can agree we should all give him our sympathetic help and consideration in dealing with this difficult problem.
But I must tell the right hon. Friend that the Budget does not face the fundamental problem of our country, which is that we are living beyond our means.

Mr. W. Wilkins: You never faced it.

Sir C. Osborne: Please! We have either to earn more or spend less. In a Budget debate we cannot deal with the expenditure part of the problem, but we cannot get into balance until both sides are considered. On the budgetary side we are dealing with the problem of earning more, and there is nothing in the Budget which will help us to earn more. The other weakness of the Budget is that it assumes the success of the incomes and prices policy. Right from the beginning I have supported that policy. It is the only economic hope for the nation. But I cannot see how the Government can assume its success when the Minister of Technology, who is the head of the greatest trade union in the country, is himself really against it at heart, together with his union. The fallacy of the Government's reasoning lies in the person of the Minister of Technology. That is the great hurdle that the Cabinet must surmount.
I want to make three points about the. Budget which cause me to feel that it is a clever Budget, drawn up by someone who has no practical experience of life. Let us consider overseas investment, which the Chancellor mentioned and then passed on, and which, as far as I know, has not been mentioned today by any other speaker. The Chancellor said that


he would allow investment overseas only if it repaid itself in two or three years' time. That is preposterous. Hon. Members opposite should not shake their heads. No investment could possibly earn 33⅓ per cent. as a minimum and 50 per cent. as a maximum to repay the capital in two or three years. That assumes that the investment starts to earn dividends from the very moment that the first sod is turned to build a factory. It is preposterous, and no one who has ever had anything to do with overseas development or business would dream of making that suggestion.
If such a thing were possible it would be profiteering of the most extravagant and ruthless kind. Does the right hon. Gentleman believe that foreign Governments will allow that? It is this stupid impossibility of a schoolboy concept—and I am trying to be fair to the Government—that vitiates these proposals. It is ridiculous, and I am surprised that such an intelligent man as the Chancellor should make a suggestion of that nature.
The Chancellor's main suggestion is a selective poll tax. I agree with the hon. Member for Sheffield, Brightside (Mr. Winterbottom) that generally the people in the distributive industries get more out of our economic system than those engaged in manufacturing industry. That imbalance has to be put right, but this selective poll tax leaves out the two greatest sinners who ought to be brought in — Government Departments and nationalised industries. They will escape, but they are clawing to themselves a greater share of manpower than anyone else. I ask the Chief Secretary to the Treasury to look at this.
On Tuesday next I am to speak to farmers and corn merchants in the Louth area. They will be furious about this poll tax. They are to be told to pay first and to recoup themselves through the February Price Review. They complain that already they do not get from the Review the expenses imposed upon them. To put this initial burden on them will make them livid. I ask the Government to thing about it again.
I speak also for small hotel and boarding house keepers who are having a very difficult time. There are many in Cleethorpes, where I have 23,000 constituents. This tax will put an unbearable burden

on these people in a small way of business. It is bound to put up prices and drive people overseas for holidays instead of encouraging them to spend holidays on our own sea coasts. It will make our people spend more currency abroad.
Also in my constituency there is a big dairy company. I know from experience that it is having the utmost difficulty in getting men to work a seven-day week on milk distribution. This will be an intolerable burden on an industry such as that. It suggests that the Government think we ought to follow the French example over purchases of bread and milk and that one should buy a loaf, tuck it under one's arm and carry it home. Do the Government want a revolutionary change such as that, or are they interested in fundamentals?
I quote from a newsreel which the First Secretary to the Treasury will recognise. It was issued by the Labour Press and Publicity Department. That is a very good source from which to quote. The May Day message by the Prime Minister, issued last weekend, said this, and it is germane to the Budget:
we are still in grave danger of paying ourselves much more than we are truly earning, and unless we hold back in our demands, all our plans for improved industrial efficiency and higher living standards will be undermined.
This is what the Chancellor should have been saying and underlining. The Prime Minister went on to say:
it would be tragic if we created unemployment through an uncontrolled scramble for higher wages which priced our goods out of world markets.
I can hear the late Sir Stafford Cripps saying that 20-odd years ago. The Prime Minister also said:
Incomes must not rise more quickly than productivity.
This is our problem. The same department reported a speech by the Minister of Labour who came to the Bull's Head Hotel in Loughborough, two miles from where I live, to a May Day victory dinner. This is the sort of thing which should have been said in the Budget statement. The Minister of Labour said:
No Government can of itself increase by one penny the total resources available for improvement in standards of life.
The Chancellor did not say that.
The resources of this nation accrue from our productive effort and only as we are more


efficiently, and in greater quantity, produce the goods that we sell, can we find any answer to the continuing demands.
He finished with this stern warning which should have been given to this crowded House this afternoon:
The alternative to continuing our present selfish and slothful way, indeed our thriftless and dishonest way of living on foreign money"—
I hope hon. Members will note that; after 18 months they cannot blame the Tories for this—
is in the end to have deflation forced upon us … deflation that could mean unemployment
This is what is really at the basis of all our troubles—
our present selfish and slothful way, indeed our thriftless and dishonest way of living on foreign money",
as the Minister of Labour said in Loughborough on Saturday night. The Budget has done nothing at all to touch that problem.
Having listened to Budget speeches for 21 years, I want to hark back to the man whom I respected more than any other man in the Labour Party—Sir Stafford Cripps, for whom I had a deep regard, as I said in the House when he was Chancellor of the Exchequer. This is what he said in this House on 27th September, 1949, and he should have been here tonight saying it:
Any firm which could earn dollars and fails to do so, or any manufacturer or trader—whether he exports or not—who does not get his costs down to the lowest figure, is, in fact, helping to put up the cost of living for us all, and to put some of us on the dole. Any worker by hand or brain who goes slow, or is an absentee, or demands more money for no more output, is, in fact, doing his best to put up his own household bills and to put somebody—quite possibly himself—out of a job."—[OFFICIAL REPORT, 27th September, 1949; Vol. 468, c. 31 and 32.]
This is a stern warning which I was hoping the Chancellor would give to the nation today, but he failed.
Later, in this House on 26th October, 1949, Sir Stafford Cripps spoke again and I should like to quote from his speech. It could be said that these utterances of his are as applicable today as they were when I first came into this House. He said:
We can express our present situation, robbed of all its technical surroundings and explanations, in quite simple terms. Unless

we can all quickly produce more and get our costs down, we shall suffer a tragic fall in our standard of living accompanied by all the demoralising insecurity of widespread unemployment.
That was an honest and fearless man speaking, a man of character and integrity. Let me quote his concluding sentences. I can remember them now. I was immensely impressed by him, for one felt that he was speaking the truth from the bottom of his heart. He said:
These economies, like devaluation, are a prelude and no more to a new surge forward to conquer the hard currency markets without which our industries, our standards of living, indeed, our civilisation itself, must fade and wither away. Mr. Speaker, we dare not fail in our efforts."—[OFFICIAL REPORT, 26th October, 1949; Vol. 468, c. 1352-3.]
That is a challenge to this Government from the grave. I know that the right hon. Gentleman had a great regard for Stafford Cripps, as I did. But the problem still faces us in spite of those stern warnings.
At that time, the average industrial wage for male workers over 21 years of age was £7 6s. 6d. a week. The latest available figure shows that the corresponding industrial wage in October, 1965, was £20 3s. 3d. For the benefit of those who like stupidly to talk about thirteen wasted years, I remind the House that the corresponding figure in October, 1964, was £19 8s. 10d. Industrial workers have said to successive Governments of both parties, since these stern warnings, "If this is an industrial crisis, may it go on for ever". They have done fine out of it. They are not bothered. When the hon. Member for Huddersfield, West (Mr. Lomas) said earlier that we must make the nation face the facts, I interjected to ask, "How are you going to make them believe them?". It says in the Good Book,
… neither will they be persuaded, though one rose from the dead.
This is the core of our problem: how do we make people believe, until they are hungry?
Neither the country nor the House would believe Winston Churchill's warnings until Hitler stood at the very gates of our country, breathing down our necks and putting the fear of God into us, which made us work and made us fight. Can we have that same spirit from our people without the hardship that that was for us? How does the right hon.


Gentleman think that he can make the industrial worker and the employer—for both are equally involved—believe him when they would not believe Cripps and Attlee? This is the problem. The rest of the Budget really does not matter.
We are importing more than we are exporting. We are told that there is a limit at the moment to what we can export. We are compelled, therefore, to look at the problem of imports. Instead of increasing taxation, as I thought he would, in order to mop up what Cripps used to call the extra spending power, will the Chancellor consider these two figures? In the so-called tragic year of 1964 when the Tory Party is supposed to have failed so miserably, the physical adverse balance of trade was about £375 million. The rest was finance, as the right hon. Gentleman knows. But in that year Canada exported to this country £458 million worth and we exported to Canada only £193 million. Thus, the Canadians had a favourable trade balance with us of £265 million. America exported to this country £650 million worth and took from us only £425 million. If the North American Continent had bought as much from us in that year as we bought from it, there would have been a trade balance in our favour.
It is true that in 1965 the position improved slightly. Canadian exports to this country were £458 million and her imports from this country were £208 million, leaving a balance of £250 million. The position vis-à-vis America has improved extremely well: imports to this country were £672 million, and our exports to America, with re-exports, were £514 million, giving a balance in favour of America of £158 million.
When I was in Vancouver and San Francisco talking to businessmen there last October, I constantly said to them, "If you do not buy our goods, how can we have the American and Canadian dollars to pay for your goods?" This imbalance with North America has lasted every year since the end of the war. It is time that we talked straight to both countries and said to them, "If you will not allow us to sell our goods in your market, we are sorry but we shall have to impose quotas." They would not like it, but they would have to lump it.
An example was brought to my notice only recently that plastics going into the American market from this country have to carry a tariff of 40 per cent. whereas American plastics coming into the United Kingdom carry a tariff of only 10 per cent. This is cockeyed and should be put right. No matter what they say about G.A.T.T., it is high time that we said to the North American Continent, "If you do not buy our goods, we cannot buy yours". We should have no balance-of-trade problems if we did that, and I ask the right hon. Gentleman please to look at that suggestion.
May I ask two other questions? Does the right hon. Gentleman and does the Chancellor accept high money rates as inevitable for ever? May I remind him that between 1932 and 1951 we had a 2 per cent Bank Rate? Now we are suffering the highest rate of interest for the longest period which this country has ever known. In the old days the Socialists used to talk about international financiers as blood-sucking, non-producers. It seems to me that the present Government are in the pockets of the international bankers. Can they not get out of those pockets? Is it not possible for the Treasury to control the volume of credit and to reduce its price? Does the right hon. Gentleman think that hot money does us any good? Could we not do without it? I remind him that these high rates of money have caused housing rents to go up, have made it more difficult for expanding industries to borrow money either on debentures or on the issue of equities and have put an extra burden upon us. Can nothing be done about it?
There is nothing in the Budget about these things, but these are the things which really matter. Do the Government accept inflation as inevitable? Have they no cure for it? Have they given up the fight? If so, what rate of inflation per annum do they regard as acceptable? It is unfair to all Government stockholders to say that inflation must go on for ever. If the Chancellor is ever to get people back into National Savings, then he need not give them a higher rate of interest; he should gear their capital to the cost of living. They would rather have a much lower rate of interest and be sure that the capital which they have saved is safe then they would have a bigger return at present.
I beg of him to say to his people in the trade union world and to our people on the employing side of industry that the way to real political ruin in the country, as history shows, is to ruin the currency. In classical days the Roman Emperors fell when their currency was debased. It was the debasement of the currency in Germany which caused the middle class in Germany to turn to Hitler. The greatest challenge which this Government have is to keep money fair and decent.
I ask the Chancellor to look at the questions which I have put. I feel that the Budget does not face up to the real problems with which we are confronted.

9.28 p.m.

Mr. W. A. Wilkins: It is not very often that I intervene in these debates, and usually I do so only when I feel provoked, as I felt provoked while listening to the hon. Member for Louth (Sir C. Osborne). He said that he has been in the House for 21 years. So have I. But obviously we have not been in the same House—or he has a very convenient memory and wishes to forget many of the things that have happened in the 21 years he has been here.
It so happens that the former right hon. and learned Gentleman to whom he has paid the highest praise was my own Member of Parliament for many years, and I probably knew much more about him than did the hon. Member for Louth. I share the hon. Member's admiration for the way in which that late right hon. and learned Gentleman tried to tackle the nation's problems. To listen to hon. Members opposite, particularly the hon. Member for Louth, speaking tonight, one would think that the situation which we face today is new. May I remind the hon. Member that Sir Waldron Smithers, formerly a Conservative Member of the House, once reprinted from HANSARD a speech which he made in the House in 1926 and issued it to all hon. Members. I sometimes wonder if I am the only one who has retained a copy of that speech. It was a speech which Sir Waldron Smithers made on a Friday afternoon when he moved a Motion the terms of which concerned the adverse balance of trade and the text of which, if repeated in the House tonight, would be

precisely and absolutely applicable to our present situation. That was 1926, 40 years ago. There has never been a time, if we are frank about this, when we have not been in the kind of situation which we have experienced in post-war years.
When I hear the hon. Member for Louth pontificating to my right hon. Friends on the Government Front Bench about what they ought to do in the present situation, I wonder why on earth he did not say those things to his own Front Bench when they were in power for 13 years and had all the opportunities in the world, with huge majorities, to change the economic climate of this country if only they had had the desire to do it.

Sir C. Osborne: I probably still sit here on these back benches for doing that very thing.

Mr. Wilkins: I concede to the hon. Gentleman that from time to time he has had outbursts of clarity on subjects of this kind, very often much to the discomfiture of his own Front Bench. He may be right, but he may be wrong, when he says that that is the reason why he remains on the back benches.
I claim that it is only since the advent of the Labour Government in 1964 that we have tried to tackle this problem fundamentally at its roots, and with not a little success. It is this policy which the Chancellor now proposes to continue, because we believe that in the last two years it has paid some dividends.
When I hear the hon. Member for Louth critical of a Chancellor who has had both the courage and the determination at least to begin to institute tax reforms, it makes me wonder. Not the least of the troubles which we are encountering in the country was encouraged by Tory Chancellors of the Exchequer for 13 years. One has only to listen to the criticisms which one hears, especially at General Elections, about allowing betting shops at almost every street corner. I remember saying, at the time when Mr. Harold Macmillan was Chancellor of the Exchequer and when he brought in his Premium Bonds, that it was the beginning of the process of encouraging people to believe that it was possible to get rich quick. to indulge in that sort of thing and to make money if one was lucky.
There is only one remedy for the ills of this country and I have never ceased to say so on public platforms. It is all very well for the hon. Member for Louth to challenge us, but I have always tried to make it absolutely clear that the country can survive only when it becomes self sufficient and its economy pays its way. No one can accuse my hon. Friends of not facing this responsibility.
I suppose that the Tories are pretty hard pressed to be critical of this Budget.

Sir D. Glover: You wait!

Mr. Wilkins: We know that the hon. Member for Ormskirk (Sir D. Glover) will find some dead horse which he can flog during the course of the next couple of days when he has had time to go home and ruminate on the Budget. I have no doubt that he will arrive back here tomorrow or the day after, having found something about which he can express his views.
The truth is that the Tories are bitterly disappointed with the Budget. They were hoping that it would be a weapon with which they could flog the Labour Party when they went to the country this weekend, but they have been disillusioned—no increased tax on tobacco, on beer, petrol or entertainment, no increase in Purchase Tax and the surcharge to be taken off in November. What do they have? I can well understand their disappointment that they do not have some whip with which to flog the Labour Party on the hustings this weekend. It is intriguing to read the newspapers. especially the Evening Standard headline at midday and the Evening Standard headline this evening. The newspaper prophets and the prophets of woe and doom have been bitterly disappointed.
I rose not only to deal with the outpourings of the hon. Member for Louth, but also to congratulate my right hon. Friend on breaking new ground and to congratulate him and his Friends in the Treasury on the almost stunning secrecy with which they were able to bring this about.

Sir D. Glover: He would have had to resign otherwise.

Mr. Wilkins: It was the best kept Budget secret for a very long time. It

has captured the imagination not only of hon. Members but of the public that for the first time we have a Chancellor who is seeking to bring in a system which will be, I hope, only the beginning of tax reform. I confess that when the Chancellor was dangling us along at one time I thought that he would suddenly tell us that he was to substitute some form of sales tax for Purchase Tax, but it was not to be. I am not one of those who would strongly resist the imposition of sales tax, provided that it was used to eliminate other indirect forms of taxation.
The nation is anxious to become self-sufficient and to balance the adverse trade figures and it must be made to understand that there is only one way in which that can be achieved. I have told my trade union friends—and I hope to be doing it again shortly at their conference—that this is so and that the prices and incomes policy is the only policy which can bring economic salvation to Britain. We must not cease from trying to impose this point of view upon those on whom we are dependent for increased productivity and for balancing our trade figures.
If the hon. Member for Louth is fair in his exposition of the Budget, I hope that he will tell those to whom he speaks that we have had to do these things very largely because of neglect by his own party's Chancellors of the Exchequer for 13 years. If I had thought when I came into the Chamber that I was going to speak, I would have brought an abundance of evidence relating to at least the last four Chancellors of the Exchequer in Conservative Governments which would show that they had no courage whatever in tackling a similar situation. I congratulate the Chancellor. I wish him well and I believe that the people will appreciate the courage of the decisions which he has made and also the intention so obviously behind this Budget, to place the burdens on the shoulders of those who are best able to bear them.

9.42 p.m.

Captain Walter Elliot: I thought that the hon. Gentleman the Member for Bristol, South (Mr. Wilkins) was rather unfair to my hon. Friend the Member for Louth (Sir C. Osborne). As I understand my hon. Friend's speech, he did not say that this situation was


something new. I have heard him many times over the years speaking in much the same vein. Whatever the Chancellor said this afternoon, no one can accuse my hon. Friend of not having issued a stern warning.
It was interesting to note that he quoted the stern warning of Sir Stafford Cripps, given 20 years ago. I wonder if, from that stern warning to that of my hon. Friends, the people have paid the slightest attention. It is one of the troubles of the Socialist Government today. It is one of the troubles of the National Plan. Stern warnings have been issued, a National Plan has been issued, but there is not the slightest incentive or encouragement for anyone to put it into operation. I believe that the last Budget and today's Budget have continued that policy.
The hon. Gentleman the Member for Bristol, South accused at least four Tory Chancellors of not having courage. I reject that. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) instituted in his Budget what was known as the pay pause. At least he had the courage to impose a pay pause in that area of employment over which he had direct control. The country reaped the benefit of that in stable prices for over two years afterwards. He got precious little support from the Socialist Party at that time.

Mr. Wilkins: Does the hon. Gentleman remember the "port and pheasant" Budget of the then Chancellor of the Exchequer, the present Lord Butler?

Captain Elliot: I was not in the House at that time, so I do not feel qualified to talk about that. I assume that was an expression used by the then Mr. Butler. I cannot argue further on that. I feel that the hon. Gentleman under-estimates the qualities of politicians on all sides of the House when he suggests that the Conservative Party will not have grounds to criticise this Budget. I would like to refer to two particular aspects.
The Chancellor brought out three points which he said the Budget was designed to meet. They were, firstly, a strong £, secondly, full employment and, thirdly, a growing economy. I believe that there is a fourth, and I do not know whether this will also be a stern warning. It is not intended to be. This fourth point

should not necessarily be the last, and it is the repayment of the debt of £900 million which remains to be paid over the next three years starting next year. It is a horrible debt. We must not forget also the great sum outstanding to the United States and Canada, borrowed in 1947 over which we defaulted in November, 1964, and again in November, 1965. It was a legitimate default; it was allowed for in the agreement. But we did not pay the capital and interest. These great debts are perhaps the first priority which we have to meet if this country is to continue successfully on its way.
The Chancellor said that he would repay those debts, that he was making preparations to do it now. I ask the Treasury Bench how will he do it. I read in the newspapers today or yesterday that we have just liquefied over 1 million shares in an American oil company which realised 83 million dollars to go to our reserves. Will that be used to pay back our debts? It may be a legitimate way to do it, but it seems very illogical to liquefy our overseas investments for this purpose, while at the same time attacking overseas investment which is going on today. In any case, it is the wrong way. I believe that it is eating the seed corn.
If it was necessary to raise money from these investments, could not they have been used as a security and allowed to go on growing as they have grown since the last war when we possessed them? The Prime Minister, in his famous New York speech, rightly boasted of our overseas assets but, with his Government, he is doing precious little to preserve them or build them up.
The Chancellor of the Exchequer said at the end of his speech, almost in passing, that he hoped that the balance of payments would be right in five years. Until then, we had always believed that we would be in balance by the end of this year. If we are not to be in balance for five years, how will we pay our debts except through realising our overseas investment? This is a further example of the Rake's Progress.
I believe that my hon. Friend the Member for Louth was right when he said that this Budget under-estimates the seriousness of our economic position; and I am sorry that it does. The first theme


of the Budget—it may not have been intentional—is that instead of balancing our accounts by the end of this year it will take another five years.
The second theme of the Budget—and it is depressing repetition of the last Socialist Budget—is increased taxation. In making his proposals to increase taxation, the Chancellor referred to them as if they were harmless—absolutely nothing. The hon. Member for Yarmouth (Dr. Gray), who is not in his place—[HON. MEMBERS: "Yes, he is."] I apologise to the hon. Gentleman; I did not see him. He said that it was a Socialist Budget. As I say, the Chancellor referred to these increases as though they were nothing, and yet they amount, as he said, to £387 million. That is to be added to the cost of Socialist rule of £600 million over the past 18 months, making a total of nearly £1,000 million. I do not know whether the hon. Gentleman is proud of that. Will he go back to his constituency and boast about it?
The purpose of the increased taxation in the last Budget in 1965 was to control demand. It failed to do it and subsequently further impositions by the Chancellor also failed to curb demand.
We reached a rather absurd position during the General Election campaign when the Chancellor boasted of his failure. We had over-full employment and this was to the credit of the Socialist Party, in spite of all the Chancellor's previous measures to curb demand. Of course, that was rubbish. In his speech today, the Chancellor said clearly and rightly that demand was too high, and his solution again is to increase taxation, by £387 million. He will fail again because this will raise prices. As my right hon. Friend the Leader of the Opposition said, speaking immediately after the Chancellor, the right hon. Gentleman's service tax will act directly on articles of everyday use, including clothing. It will operate on food and on all types of goods, and it will raise prices.
There is no doubt that as the result of this Budget, prices will go up. That is all very well for the great big pressure groups. It is all very well for the individual who has a big pressure group behind him like a trade union, enabling him not

only to keep abreast of rising prices, but to keep ahead of them. The weight of this Budget will fall upon the pensioner, those living on fixed incomes, and those living on their invested savings. They are the ones who will pay for this Budget, but they are not the people who are putting pressure on demand. It is those who are currently earning, with the big pressure groups behind them, but these people will escape because they can apply economic pressure to keep up their earnings.

Mr. Geoffrey Wilson: Has my hon. and gallant Friend considered the possibility that this subsidy of 7s. 6d. per nob for each man employed might lead to an increased demand for wages?

Captain Elliot: I agree entirely with my hon. Friend. There are many aspects of the service tax which, no doubt, in the course of this debate will be gone into thoroughly, but I am grateful to my hon. Friend for raising that point.
I believe that this Budget will fail for three reasons, apart from the general reason that it does not go far enough. It will fail, first, because those really responsible for the pressure of demand will escape. I believe that demand will continue to rise. Secondly, the Budget fails because of the complete lack of incentive for greater efforts or for the taking of greater risks. Thirdly, it fails because it continues to weaken our long-term position.
I spoke recently in the debate on the Queen's Speech and I said that the Government would have the right to call upon the support of the Opposition if they acted courageously on economic policy. I meant that sincerely. I believe that many of my hon. Friends on this side feel that way also. I said that I awaited the Budget with acute interest. I would have supported the Government had they taken the measures which, I think, are necessary to get our economy straight, to pay back our debts and to pay our way. I do not believe that this Budget is an answer to our problems. It is a continuation of the Socialist Rake's Progress, it is the road to disaster, and it will not be long before this is brought home to the country.

9.55 p.m.

Sir Douglas Glover: I am delighted to have been called in this


Budget debate tonight. It is a long time since the repeal of the Corn Laws, but the present Government are the first to have the courage to tax the nation's food. This is a very different story from the one put out during the General Election, when the party opposite complained about Tory policy for agriculture because, they said, it would raise the price of food. Then, within a month, the Government bring in a Budget which, at a very conservative estimate, will put up the price of most food by 5 per cent.
There is to be this 25s. a week tax on employees of all the distributive trades, including slaughterers, distributors, retailers and any processor who does not come under the heading of "manufacturer". This again will be a heavy burden, particularly to the people on fixed incomes and the old-age pensioners. It is also inflationary, because it will be passed on to the cost-of-living index. It will give to the public a reason for demanding increased wages.
I am not against a pay-roll tax. I am against the present proposal for a payroll tax, because I cannot understand what was in the mind of the Chancellor of the Exchequer when he made these proposals. If his proposal said that any manufacturing firm which kept its turnover to the same level but was able to dispense with any of its employees would get a bonus from the Government for increased efficiency, I could have understood this.
I admit that it might have been difficult to work out. It might have been a difficult administrative problem. But it would have been a strong pressure for increased efficiency in our manufacturing industries. But what do the Chancellor's proposals bring about? The trade unions now know that, in a foreseeable time, each of their employers will receive 7s. 6d. a week per employee as a bonus from the State.
For the life of me, and however responsible the trade union leaders may be, I cannot see any union not slapping in an immediate claim for 7s. 6d. increase in wages. They will know that the employers will be getting the money from the State and they will therefore demand that the money be paid to those working in the industry. Human nature being what it is, I cannot see how I could blame them for taking that action.
There is nothing in the proposal, therefore, to bring about increased efficiency. It will merely provide an inbuilt reason for retaining labour in the manufacturing industries and for demanding wage increases by the unions in industries where the State, out of its generosity, is subventing the employers by 7s. 6d. a week for every male employee and 12s. 6d. for every female employee. If that does not create inflation I should like to know what will.
I also want to criticise the Chancellor's proposal in that he claims that the agricultural community will recoup its expenditure on the pay-roll tax in the Annual Price Review. I need not tell you, Sir Eric, with your long experience, that in the last two Price Reviews, the farming community under-recouped its costs by £28 million and if the Government think that they can sell to the farming community the idea that the pay-roll tax will be taken care of in the next Price Review——

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Report of Resolutions to be received Tomorrow.

Committee also report Progress; to sit again Tomorrow.

WAYS AND MEANS [2nd May]

MILITARY AIRCRAFT (LOANS)

Resolutions reported,

That it is expedient to authorise the Treasury, during the six years ending on 31st March, 1972, to issue out of the Consolidated Fund sums not exceeding in the aggregate four hundred and thirty million pounds, to be applied as appropriations in aid of moneys provided by Parliament for those years for defraying expenditure by the Ministry of Defence and the Ministry of Aviation—

(a) in the purchase from the Government of the United States of America of military aircraft, or parts, equipment or other articles for, or for use in connection with, military aircraft, or
(b) in making payments to that Government in respect of costs incurred by them in connection with any aircraft, equipment or other articles so purchased, including in particular costs of development and testing and of training persons in their operation or maintenance,



so, however, that the sums so issued for any year shall not, in the case of either Ministry, at any date exceed in the aggregate the total amount proposed to be so issued to defray their expenditure on the matters above referred to by the estimates upon which this House has, before that date, resolved to grant sums to Her Majesty to defray such expenditure for that year.

2. That the Treasury be further authorised, for the purpose of providing sums (or any part of sums) to be so issued, or of providing for the replacement of all or any part of sums so issued, to raise money in any manner in which they are authorised to raise money under the National Loans Act 1939 (any securities created and issued for that purpose to be deemed for all purposes to be created and issued under that Act).

3. That provision be made for and with respect to—

(a) the repayment to the Exchequer, out of moneys provided by Parliament for the service of the Ministry of Defence or the Ministry of Aviation, of the sums so issued, together with interest thereon, and
(b) the re-issue out of the Consolidated Fund, and the application, of sums paid into the Exchequer under the preceding subparagraph.

Resolution agreed to.

Bill ordered to be brought in by the Chairman of Ways and Means, Mr. Healey, Mr. Mulley, Mr. Diamond, Mr. Merlyn Rees, and Mr. MacDermot.

MILITARY AIRCRAFT (LOANS)

Bill to provide money for the purchase of military aircraft, and parts, equipment and other articles for, or for use in connection with, military aircraft, and for the making of payments in respect of costs (including development, testing and training costs) incurred in connection therewith; and for connected purposes, presented accordingly, and read the First time; to be read a Second time Tomorrow and to be printed [Bill 10.]

BUILDING CONTROL [MONEY]

Resolution reported,

That, for the purposes of any Act of the present Session to regulate building and constructional work, it is expedient to authorise the payment out of moneys provided by Parliament of any administrative expenses incurred by the Minister of Public Building and Works in consequence of the provisions of that Act.

Resolution agreed to.

STATUTORY INSTRUMENTS

Select Committee appointed to consider every Statutory Instrument, every Scheme, or Amendment of a Scheme, requiring approval by Statutory Instrument, and every Draft of such an Instrument, Scheme or Amendment, being an Instrument, Scheme, Amendment or Draft which is laid before the House and upon which proceedings may be or might have been taken in the House in pursuance of any Act of Parliament, and every Order which is subject to Special Parliamentary Procedure, with a view to determining whether the special attention of the House should be drawn to it on any of the following grounds:—

(i) that it imposes a charge on the public revenues or contains provisions requiring payments to be made to the Exchequer or any Government department or to any local or public authority in consideration of any licences or consent or of any services to be rendered, or prescribes the amount of any such charge or payments;
(ii) that it is made in pursuance of an enactment containing specific provisions excluding it from challenge in the courts, either at all times or after the expiration of a specified period;
(iii) that it appears to make some unusual or unexpected use of the powers conferred by the Statute under which it is made;
(iv) that it purports to have retrospective effect where the parent Statute confers no express authority so to provide;
(v) that there appears to have been unjustifiable delay in the publication or in the laying of it before Parliament;
(vi) that there appears to have been unjustifiable delay in sending a notification to Mr. Speaker under the proviso to subsection (1) of section 4 of the Statutory Instruments Act 1946, where an Instrument has come into operation before it has been laid before Parliament;
(vii) that for any special reason its form or purport calls for elucidation;

and if they so determine, to report to that effect:

Mr. Ronald Bell, Mr. Hugh D. Brown, Mrs. Joyce Butler, Sir Beresford Craddock, Mr. Dickens, Mr. Jack Dunnett, Mr. R. Graham Page, Mr. Thomas Price, Mr. William Robinson, Mr. Christopher Rowland, and Mr. John E. Talbot:

To have the assistance of the Counsel to Mr. Speaker:

Power to sit notwithstanding any Adjournment of the House, to report from time to time, and to report the Minutes of their Proceedings from time to time:

Power to require any Government department concerned to submit a memorandum explaining any Instrument or other Document which may be under their consideration or to depute a representative to appear before them as a Witness for the purpose of explaining any such Instrument or other Document:

Three to be the Quorum:

Instruction to the Committee that before reporting that the special attention of the House be drawn to any Instrument or other Document the Committee to afford to any Government department concerned therewith an opportunity of

furnishing orally or in writing such explanations as the department think fit:

Power to report to the House from time to time any Memoranda submitted or other evidence given to the Committee by any Government department in explanation of any Instrument or other Document:

Power to take evidence, written or oral, from Her Majesty's Stationery Office, relating to the printing and publication of any Instrument or other Document.—[Mr. Gourlay.]

CONSOLIDATION &c., BILLS

Lords Message [28th April] communicating the Resolution, That it is desirable that, in the present Session, all Consolidation Bills (whether public or private), Statute Law Revision Bills and Bills prepared pursuant to the Consolidation of Enactments (Procedure) Act 1949, be referred to a Joint Committee of both Houses of Parliament to be considered forthwith.—[Mr. Gourlay.]

Lords Message considered accordingly.

Resolved,

That this House doth concur with the Lords in the said Resolution.—[Mr. Gourlay.]

Message to the Lords to acquaint them therewith.

NEWPORT (MONMOUTHSHIRE) ORDER, 1966

10.5 p.m.

Mr. Donald Anderson: I beg to move,
That an humble Address be presented to Her Majesty, praying that the Newport (Monmouthshire) Order, 1966 (S.I. 1966, No. 120), dated 4th February, 1966, a copy of which was laid before this House on 18th February, in the last Session of the last Parliament, be annulled.
It is unusual, if not unprecedented, for a maiden speaker to attack an Order of the Government which he supports. It is also, I understand, traditional for a maiden speaker to be non-controversial. I cannot expect that my Prayer tonight will move mountains, or that it is likely to excite much interest in the country as a whole, but if my hon. Friend were to go to the area affected—and it is, indeed, only to part of the Order to which I wish to object—and if he were to go particularly to the Christchurch area, he would realise just how much controversy has been aroused there as a result of the Order. I am confident, too, that the Order raises certain fundamental questions about the interpretation of the Local Government Commission Regulations, 1958, and is, therefore, a useful test case for examining these Regulations.
Before proceeding, however, to the substance of my argument, I should like to pay a well-deserved tribute to my distinguished predecessor, who served in several high governmental positions, being, in turn, President of the Board of Trade, Chancellor of the Exchequer, Minister of Aviation, Minister of Defence and Secretary of State for Defence. He served the constituency for 21 years, and, indeed, was a Member of this House before I was born. One thing I have always admired was his political courage in resigning from a high governmental position when he disagreed with the policy of the then Government.
It is traditional, too, in a maiden speech, to describe the diversity of one's constituency. I am very tempted to do this, to describe the contrast between the farming in my constituency and the Spencer Steel Works, the new communi

cations, the Severn Bridge, the M4, the delightful valleys of the Wye and the Usk, but I shall limit myself to illustrating that diversity by examining in detail the controversy aroused by this Order.
To sketch in the background very briefly, the Local Government Commission for Wales, set up in 1959, following the Local Government Act, 1958, published its draft proposals in May 1961. It proposed to transfer from the County of Monmouth to the County Borough of Newport not only the area on the south side of the Christchurch ridge—that area, indeed, which was agreed by the county council, although hotly disputed by the Caerleon Urban District Council—but also the area to the north of the Christchurch ridge, that is, the area including the Christchurch Estate.
The Commission argued in paragraph 788 of its Report that the county's offer—that is, the area only to the south of the ridge—would have split the village of Christchurch, although really only the church room and the vicarage would then have been on the wrong side of the boundary, hardly a substantial argument, I think, for not drawing the boundary in that position on the crest of the ridge which most geographers would imagine the most suitable physical place for drawing the boundary. As I hope to show later, the present boundary halfway down the hill leaves very much to be desired.
The final Report of the Commission was published in December, 1962, and a public local inquiry confirmed its proposals in April, 1964. The reason for the urgency of this debate is that as a result of the negative procedure a Prayer must be raised against this Order before 6th May.
What, then, are the objections of my constituents to the Commission's proposals? First, it is difficult to reconcile the proposals with the Local Government Regulations, 1958, which state quite clearly in Regulation 11:
Before proposing the inclusion in a county borough of an area comprising or forming part of a county district … the Commission shall consider, inter alia, …

(a) The question whether the area, if already built-up, is not only substantially a continuation of the town area …"



and this is the important thing—
but also has closer and more special links with it than those which necessarily arise from mere proximity: …

(c) The question whether … there would be a balance of advantage in the change, having regard to the interests of the inhabitants of the county borough and the county district …"

The Commission's Report concludes, in paragraph 785:
The land south of the ridge is cut off physically from Caerleon town and in every respect except local government administration can be considered to look towards Newport.
It does not attempt to make such a case for the area to the north of the ridge, that is the area in dispute, the area containing the Christchurch Estate. Indeed, as I mentioned earlier, I am confident that the ridge is the best physical boundary, and that at the moment the boundary lying as it is drawn half way down the hill really means that the county borough is encroaching towards the River Usk, and there seems no valid reason now why this should not be continued, why the county borough should not take in that area which is Caerleon Village which lies on the same side of the river as the Christchurch Estate, and which adjoins that estate.
The Welsh Office has not attempted to make a case either for the inclusion of the Christchurch Estate, that is, the area to the north of the Ridge Road, in the county borough. In its letter of 15th July, 1965, to Dr. Tranter of the Christchurch and Coldra Residents' Association, the Welsh Office wrote:
In arriving at his decision the Secretary of State … had no doubt that the areas were physically part of Newport and concluded that the balance of advantage is in favour of the proposed transfer.
Thus, the residents were again given reasons which I maintain were not valid under the terms of the 1958 Regulations.
Naturally, many residents of the Christchurch area seek employment and entertainment, and do their shopping in the County Borough of Newport, but, as interpreted in this case, I believe that the Regulations are so loose as to invite large urban units to gobble up those county districts immediately adjoining them, and are not in tune with the times. People are willing to travel very far to their place of work, and thus many

local authority boundaries are becoming increasingly unrealistic.
Where is the evidence to show that there are such special ties as mentioned in the Regulations, in this case between Newport, the county borough, and the district of Christchurch? Certainly the inhabitants of the Christchurch Estate do not feel such special ties with Newport. Indeed, they bought their houses there in the expectation that they would be living in a county district, in a rural area though, as I say, relatively close to the County Borough of Newport.
If my hon. Friend were to stand, as I did last weekend, in Oldhill Crescent, on the Christchurch Estate, and look towards Newport on the horizon on one side, and then look down to Caerleon, with Caerleon Village, just adjoining the Christchurch Estate, and the town of Caerleon proper on the other side of the River Usk, he would understand why the residents do not feel this identification with Newport as they do with Caerleon, in which urban district they are at present sited. If there are such special ties between Christchurch and Newport, do not they apply equally forcefully to Caerleon, or at least to Caerleon Village, which, with Caerleon proper, the Commission has seen fit to leave within the county area?
The second main objection of the residents of the Christchurch Estate is that obviously the decision on Christchurch must have been very closely balanced. In the penultimate paragraph of his Report on the Public Local Inquiry dated 31st July, 1964, Sir Ralph Hone concluded:
It seems to me that the decision to be reached must depend to a large extent on the weight which the Minister attaches to the wishes of the inhabitants which, on the evidence, are clearly strongly against incorporation with Newport.
Certainly over 90 per cent. of the residents of this estate feel no identification with the borough of Newport in the way that the residents, for example, of the Bettws Neighbourhood Unit feel with the county borough. Over 90 per cent. of the residents were willing to contribute to a fund to defray the cost of legal representation at the public local inquiry.
In order to override such strongly-held objections of the local residents, powerful arguments need to he produced, but the only valid reason which has so far been


given appeared in paragraph 819 of the Commission's Report, which said:
We are convinced that this area is to a large extent indispensable to the Borough Council in solving their housing difficulties and is in any case closely associated with Newport.
Mere close association is not in itself a reason for incorporation into the county borough. The Malpas farm area, of 57 acres, was not, as a result of the inquiry—although originally proposed by the Commission—transferred to the county. Would not these 57 acres in Malpas go a long way towards compensating the county borough for the loss of Christchurch? Are we really to believe that the 80 acres of buildable land in the area is indispensable to a county borough with an acreage approaching 10,000?
If, as the county at one stage suggested, the line were to be drawn at the new trunk road, this would effectively cut off the Christchurch Estate from the area which can be built up, and so would give the county borough what it wanted while still giving the residents of the Christchurch area what they want, which is to retain their position in the Caerleon urban district.
Sir Ralph Hone concluded his Report in paragraph 96 by saying that
it does not appear to me that this"—
that is, the 80 buildable acres in Christchurch—
represents any 'loss' to the Corporation for which they should be compensated".
Thus, this argument about the housing needs of Newport is very debatable. The residents feel that they are the innocent victims of geographers, playing with coloured pieces on maps, and that although the formal machinery for safeguarding the private citizens' interests appears very impressive on paper, in fact their wishes have not been heeded at any stage.
Paragraph 7 of the 1958 Regulations states that the wishes of the inhabitants should, among other things, be heeded, yet in paragraph 29 of its Report the Commission seems to doubt even the possibility of obtaining an impartial view of what the residents really want. It says
That any presentation aimed at securing an expression of the wishes of the inhabitants could have been really impartial we find it impossible to accept.

If this is so—if it is quite impossible to obtain an impartial view of what the residents really want—should not the Government give clear guidance to future commissions on how to set about, in an impartial way, finding out what the residents of the area really want? This section of the Commission's Report, in paragraph 30, ends on a very presumptuous note. It says:
The wishes of the inhabitants are, we repeat, important. The paramount consideration is their well-being.
I mistrust authorities which tell me what is in my interest.
In any case, why make the decision now on this question when the whole future of local government is in the balance, not only as a result of the Royal Commission on Local Government, which we hope will report in two years' time, but also as a result of the report commissioned by the Welsh Office on local government in Wales? I understand that is a very comprehensive report, dealing with areas, functions, finance—the lot.
If we are to get that report from the Welsh Office very shortly, why take a decision now on these relatively small points concerning changes between county boroughs and counties? Some of us, certainly on this side of the House, hope that the whole pattern of local government, and the relationship between county boroughs and counties will be looked at radically. Is there not a case for a standstill on minor changes of this sort in advance of the conclusions of these various learned bodies which are at present considering the future of local government, not only in Wales but in the country as a whole?
The third main objection of my constituents is that the Commission is meant to propose changes:
in the interest of effective and convenient local government.
It is difficult to see what the decision in this Christchurch issue has to do with effective and convenient local government. What is to be the benefit to the residents of Christchurch? Having been shown their new rate demands by some of the residents, I am sure they are not very much aware of the benefit at the moment. What is to be the benefit to Caerleon Urban District Council, which, as a result of this Order, loses four-fifths of


the rateable value of Christchurch Ward whilst retaining four-fifths of the area of the ward? Caerleon U.D.C., is already considered by some not to be a viable local government unit. On the housing side, what is likely to be the benefit, at least substantially, to the County Borough of Newport?
Because the reasons in favour of this change have appeared so slight, in my conversations with the residents of the area I heard the view expressed again and again that they were the innocent victims of a simple land bartering arrangement. It was said that, because the County of Monmouthshire received the new Spencer Steel works at Llanwern, with all the rateable value which comes from that steel works, the county had to make some sacrifice to the county borough which at the time was hoping to have the new steel works sited within its enlarged boundaries.
On this point, the allegation that a land bartering arrangement was involved, the local newspaper, the South Wales Argus, wrote on 14th April:
If there is even a half truth in this, it shows a completely cynical disregard for the fundamentals of local government re-organisation and for the needs of the people involved. … a direct denial of the ordinary rights of communities to be regarded as important in themselves and not merely as pieces of negotiable property. … Indeed, the Welsh Office may well regard this allegation as important enough to justify some form of inquiry. … the Government must see that they are made fully aware of the reasons for any action, or lack of it.
There is a completely new team at the Welsh Office and, if I may say so, a very able team of which my hon. Friend the Under-Secretary is a part. This team is not honour bound to accept the decisions and recommendations of its predecessors. I hope they will consider the issues raised by this Order and raised by the great concern of the residents of Christchurch sufficiently important to warrant some reconsideration of the Commission's recommendations.
I should like to pose to my hon. Friend three questions which have not, so far as I can see, and certainly so far as the residents of Christchurch feel, been answered as yet. First, what are the links between Christchurch and the County Borough of Newport which are closer and more special than those which necessarily

arise from mere proximity? Secondly, how could the Minister reconcile the existence of these links with the near-unanimous opposition of the residents of the Christchurch area? Thirdly, is the Minister prepared to state unequivocally that the change is not by way of compensation to the County Borough of Newport for the siting of the steel works outside its boundary, but is in the interests of efficient and convenient local government in the area?
It is the man who proposes a change and not the man who defends the status quo who must give reasons for his proposals, the authorities who must justify their proposals to the aggrieved citizens. So far such cogent reasons have not been given, and I hope that tonight, for the benefit of the residents of this area, my constituents, the Minister will give the reasons.

10.27 p.m.

Mr. Raymond Gower: It is a privilege for me to congratulate the hon. Member for Monmouth (Mr. Anderson) on his first speech in this House. It must be a long time since an hon. Member of this House made his maiden speech on the occasion of a debate on an Order of this kind. Those of us who have heard his speech tonight can well understand the reasons which motivated the hon. Member in choosing this occasion, and I think hon. Members on both sides of the House will feel that, whatever their views about the matter under consideration, he has presented his case with clarity, confidence and ability. [HON. MEMBERS: "Hear, hear."] Indeed, I would suggest that he has made such a persuasive speech that the Welsh Office should have second thoughts about this matter.
It is not a pretty picture to see county boroughs trying to abrogate control over areas adjoining their jurisdiction. The hon. Gentleman made that quite clear. Those of us who know the countryside around Newport and love it and those of us who have read the poems of the famous W. H. Davies——

Mr. Cyril Bence: Hear, hear.

Mr. Gower: The hon. Member for Dunbartonshire, East (Mr. Bence) is obviously as familiar as I am with that


poet. He has lived in Newport for a long time. Those of us who love the poems of W. H. Davies know how he dwelt upon the beauty of places like Caerleon, Llanwern and Llantarnam. Indeed, it seems to many of us that it is an indication of progressive administration to draw into a county borough the sort of place that Caerleon, or part of Caerleon, is. It is highly desirable that this should be left under its present kind of three-tier administration in the county of Monmouth.
The hon. Gentleman paid a charming tribute to his predecessor, Mr. Peter Thorneycroft, and it seems a cruel fate that, so soon after his great achievement in winning the constituency of Monmouth, his right hon. and hon. Friends should seek to tear away part of his constituency in this way. [Interruption.] That is a fact, and it seems a poor reward for services well done. The Government are doing serious harm to the hon. Gentleman's constituency and serious harm to the County of Monmouth of which it forms part.
I shall try not to be partisan, but I hope that the Welsh Office will have second thoughts about it. I am sure that the Under-Secretary of State is familiar with the area of Caerleon. We are all aware that it is in proximity to Newport, as the hon. Member for Monmouth admitted, but, on the other hand, it is also the gateway to that lovely countryside which leads up to Usk, Raglan and Monmouth. I submit that there is no real purpose in transferring it in this way. There can be no question of increased efficiency. If the Minister at the Welsh Office takes the view that Labour-dominated authorities are better than others, there are Labour-dominated authorities in both directions. The Monmouth County Council is a Labour-dominated authority, and it is admittedly an authority with a splendid record of administration fully equal to the County Borough of Newport.
The Minister must give a cogent reason why this part of Caerleon will fare better under the County Borough of Newport than under the County of Monmouth. I see with some nostalgia the reference in the Order to St. Bride's Wentlooge in the rural district of Magor and St. Mellons, and I hope that the part in-

cluded in the plan under St. Bride's Wentlooge is very small indeed. As the hon. Member for Monmouth knows, there is no part of the coastline there which is less to be reconciled with the town of Newport than the village of St. Bride's Wentlooge, and, although he did not refer to that particular part, there might be equal objections to its incorporation in the county borough.
There are other objections to this procedure. All sorts of subsidiary results arise. To give a simple example, the police authority for the County of Monmouth embraces the village of St. Mellons as well as the village of St. Bride's Wentlooge, and it is far more convenient for that police authority to deal with matters arising in St. Bride's than it is for the County Borough of Newport police authority.
I submit that there are serious objections which the House ought to consider in the future if it is intended to make important changes of this kind by such Orders as this. These are matters of such importance that they should be embraced in a Bill brought before the House and debated in detail. It seems to me that the mere acceptance or rejection of an Order of this kind is not an adequate procedure to deal with matters of such moment to the people residing in the areas affected.
For those reasons, and others which I cannot elaborate in the time available tonight, I support a great deal of what the hon. Member for Monmouth said. This is not a matter to which we should adopt a partisan approach. It is one on which hon. Members on both sides can feel deep sympathy. The hon. Gentleman presented a powerful case, a case which deserves a cogent answer setting out very sound reasons. On the face of it, those reasons are not to be found in the Order.

10.35 p.m.

The Under-Secretary of State for Wales (Mr. Ifor Davies): It causes me great personal pleasure to have the opportunity tonight to be the first hon. Member on this side of the House to extend congratulations to my hon. Friend the Member for Monmouth (Mr. Anderson). I endorse what was said by the hon. Member for Barry (Mr. Gower), that my hon. Friend put the case very clearly and very powerfully, and I am sure that I carry the


whole House with me when I say that we look forward very much to hearing him in our future deliberations. I congratulate him, too, on the ingenious way which he has chosen to deliver his maiden speech on this Prayer. It has proven that he has the concern of his constituents at heart. He has chosen this very clear opportunity to put before the House the anxieties and fears of his constituents.
As the hon. Member for Barry said, my hon. Friend was gracious enough to make a reference to his predecessor. We all recognise that. He boasted of the glories of his constituency. We all recognise, not only in the House but far and wide, the glories of Monmouth. Perhaps he was too humble to boast of his great victory in the last election. I congratulate him heartily. We noted the gesture which he paid.
I believe that every hon. Member when he delivers his maiden speech utters a silent prayer, but tonight my hon. Friend has prayed loud and strong in connection with this Prayer. The Order now before the House is one of a number which have been made under the Local Government Act, 1958, for the extension of a county borough. This is the first such Order in Wales and Monmouthshire and. although it is unique in that respect, in others it follows the familiar pattern of consistent objection from the area to be taken into the county borough.
Let me remind the House of the sequence of events in this story. The Local Government Commission for Wales was set up and charged with the task of reviewing the boundaries of counties and county boroughs in Wales. The procedure set out in the Local Government Act, 1958, required that the Commission after its initial investigations should first publish draft proposals, and after considering objections to these, it prepared its final proposals. These, too, were published and, indeed, a public inquiry was held into the objections. The Secretary of State then came to a final decision based on all this material, and the Order now before the House puts into effect his decision on the boundaries of Newport County Borough.
The procedure has been a long one, and I assure my hon. Friend that it has ensured that the people concerned have had ample opportunity to make their views known. My hon. Friend's case is

directed mainly to the proposals as they affect the Christchurch area, a small but certainly a very important part of the total area being transferred to the county borough. One of his main points is that Christchurch has no real links with Newport. This, of course, is not a new point. It was made to the Commission when it visited the area to see for itself and it has been made at every point of the proceedings. The Commission did not accept this view. The Commission concluded that Christchurch had links with Newport other than those of, mere proximity, and the Secretary of State was satisfied that this was so.
But this was by no means the sole issue before either the Commission or my right hon. Friend the Secretary of State, and it should not be forgotten that the Secretary of State also had in mind the need of Newport Borough for building land. The Commission was convinced that this area was to a large extent indispensable to the borough council in solving its housing difficulties and at the inquiry into the Commission's proposals the county borough council maintained that insufficient housing land would be available to it and it asked for more. The Secretary of State did not accept that the housing requirements of Newport were such that additional land over and above that recommended by the Commission was needed, but, equally, he did not feel that he would be justified in reducing the recommended added area.
It has been suggested, too, that the amount of land at Christchurch likely to be suitable for building is insignificant in relation to the borough council's housing programme. At the least, there seems to be sufficient building land in the added area, in the opinion of the county planning officer, to accommodate more than 1,000 dwellings, hardly an insignificant number at a time when we need to make the best use of every acre of building land in and around our towns. I would acid that a boundary alone the line of the new bypass, which has also been suggested, would very much reduce the available building land since, I am assured, much of the land south of the road would not be suitable for building.
Another point which my hon. Friend made was that the wishes of the inhabitants of Christchurch have received insufficient attention, a very important


statement. I must emphasise that the facts are that the closest attention was paid to the objections of the inhabitants of the area. They have made their wishes known at every possible stage. This, of course, is not a simple matter. If Parliament had intended that the wishes of those being transferred should be the only thing that mattered, it could have provided for each boundary change to be settled by simple referendum, but this, of course, would have been absurd. The Regulations make it quite clear that the wishes of the inhabitants is only one of the factors to be taken into account. The Regulations refer to many other factors, such as the extent of development and expected development, economic, industrial and geographical characteristics, financial resources and communications, in addition to the wishes of the inhabitants.
In the ultimate, it is a matter of weighing the balance of advantage in changes of this sort, as is also stated in Regulation 11(c) of the Local Government Commission Regulations, 1958, which directs that consideration shall be given to
the question whether (after taking into account any related proposals which may be in contemplation) there would be a balance of advantage in the change, having regard to the interests of the inhabitants of the county borough and the county district.
The Commission came down in favour of including the area in Newport and the Secretary of State agreed. He was satisfied that before coming to a conclusion about Christchurch, the Commission had carefully weighed all the factors which it had had to consider. He agreed that the residents' view deserved the greatest respect, and I assure my hon. Friend that he meant that. But he felt, nevertheless, that, despite the inspector's comment, as quoted by my hon. Friend, the evidence reported by him served only to strengthen the Commission's recommendation. Indeed, the inspector, as I remind my hon. Friend, has also made it clear that the general impression he had was that Christchurch seems to be physically a part of Newport.
It is my experience that, in nearly every instance where a recommendation is made to incorporate within a borough a built-up area or an area containing

some kind of existing community, the views of the inhabitants of that area are overwhelmingly against the proposal and they almost inevitably express themselves satisfied with the status quo and are adamant that there will be no material benefit to them in the transfer.
Clearly, if county borough extensions are ever to include partially built-up areas, there must be circumstances in which other considerations must be taken into account as well as the views of the residents. Such circumstances, I submit, exist in the case of Christchurch, where my right hon. Friend considered the views of the inhabitants most carefully but concluded that they did not override the Commission's reasons for recommending the inclusion of this area within the county borough.
My hon. Friend made a very important reference at the end of his speech. He referred to rumours which he had heard to the effect that this decision was the outcome of some questionable deal. If there are such rumours, then I am glad that my hon. Friend has raised the matter, thereby giving me the opportunity to say, with all the emphasis that I can command, that there is no truth whatsoever in such an allegation.
Indeed, I deeply regret that any such suggestion should have been made. The Local Government Commission for Wales was a body held in the highest regard in Wales and tribute has justly been paid to it from all quarters. It discharged an unenviable task with courage, fairness and integrity and it would be quite wrong of me to let any of these rumours pass without challenge.
In conclusion, I can assure my hon. Friend that the inhabitants of the transferred areas will be served—and this is in reply to the hon. Member for Barry as well—by a progressive county borough council able to provide the whole range of local government services on an integrated basis under the control of a single council. For them, the impact of an increase in rates has been softened by a provision in the Order for differential rating. They should have no fears, however, that the community spirit they have enjoyed in Christchurch will be lost. I therefore ask the House to reject the Motion.

10.49 p.m.

Mr. David Gibson-Watt: Before the Under-Secretary of State sits down, perhaps I could add a few words from this side with reference to the maiden speech of the hon. Member for Monmouth (Mr. Anderson). It is many years since the House heard a maiden speech from an hon. Member for Monmouth and I am sure that, as my hon. Friend the Member for Barry (Mr. Gower) said, the way in which the present 'hon. Member made his speech and his reference to his predecessor were very much admired.
The hon. Member said that he was being controversial. All I can say is that he was controversial in a very pleasant way and we look forward to hearing more contributions from him both in this House and in the Welsh Grand. Committee.
I want to put two points to the Under-Secretary of State. The first is one that the hon. Member did not put. Why were these areas not removed from Monmouth until the date they were? Why were they not removed earlier? Was there some particular working of the machinery of the Order that it had to be delayed until April? My second point, to which I am sure the Under-Secretary can reply, is whether this type of change-over is always to be incorporated in an Order rather than a Bill. I am sure that the hon. Gentleman knows the answer to this.
I put these two questions shortly to the House, and as this is the first opportunity during this Parliament when we have discussed Welsh affairs, perhaps I might be allowed to say to the triumvirate who sit on the Front Bench opposite that we look forward to many encounters in the weeks and months ahead.

Mr. Speaker: May I point out to the hon. Gentleman that this was not an intervention under the traditional expression "Before the hon. Gentleman sits down"? It was a speech. It was a very gracious speech, but it was his speech for the purpose of this debate.

10.51 p.m.

Mr. Graham Page: I, too, join is the congratulations to the hon. Member for Monmouth (Mr. Anderson). It is traditional that in a maiden speech one talks about one's own constituency, but the hon. Member certainly broke

away from tradition tonight in choosing to make his maiden speech on a Prayer on his own constituency. Not only did he break away from tradition in that way, but he chose to attack his Front Bench in his maiden speech, and that showed enormous courage.
The hon. Member paid tribute to the courage of his predecessor. He has, I think, inherited it. He has inherited, too, the fluency of speech and the clarity of explanation of his predecessor. We shall certainly enjoy hearing him many times in the House, and I forecast that he will be creeping down the benches opposite to steal a position from the triumvirate, whom I also congratulate.
I was in great agreement with the hon. Member for Monmouth when he asked why we do not wait for the Report of the Commissions which are considering local government before bringing in piecemeal Orders of this sort. My point on the Order is a narrow but important one and, therefore, I will refrain from following the hon. Member in that wider argument.
I want to question whether the Secretary of State—not the right hon. Gentleman now sitting on the Front Bench, but his predecessor—had the power to make an Order which includes an Article about compensation for loss of employment by local government servants. This appears in Article 54 of the Order. It has always been a matter for national negotiation and not one for any particular area of the country. For that reason, this was excluded from the functions given to the Secretary of State in the Order under which tonight's Order is made.
The recital to the Order shows that it is made under Sections 23(1), 38 and 60(1) of the Local Government Act, 1958. That Act itself gave no power whatever to the Secretary of State for Wales to introduce an Order of this sort. The Secretary of State relies upon the Secretary of State for Wales and Minister of Land and Natural Resources Order, 1965, which is recited at the beginning of tonight's Order.
If one refers to that 1965 Order to find what functions have been transfered to the Secretary of State for Wales, one finds from Article 2 that
The functions of the Minister of Housing and Local Government under the enactments


specified in Part I of Schedule 1 to this Order, in so far as those enactments apply to Wales, are hereby transferred to the Secretary of State.
This is the power under which the Order we are now discussing was made. Therefore, one has to turn to the Schedule to that 1965 Order to find exactly what functions were transfered to the Secretary of State for Wales. Amongst those in the list is the following:
The Local Government Act 1958, except Part I, section 60(2) and Schedules 1 and 2.
Schedules 1 and 2 deal with the general grants, and that function was obviously not transferred. Section 60(2) of the Act is that which deals with compensation for loss of office by local government servants.
This was not transferred to the Secretary of State for Wales. Section 60(2) of the Local Government Act, 1958, deals with the provisions which can be made, by such Minister as determined by the Treasury, for the payment of compensation in respect of persons who are holders of such place, situation or employment as may be prescribed and who suffer loss of employment or loss or diminution of emoluments by reason of an Order made under that Section.
It is quite clear in the Explanatory Note to the 1965 Order that there was a very good reason for not transferring to the Secretary of State for Wales the power to make Regulations concerning compensation for loss of employment by local government servants. The Explanatory Note to the 1965 Order makes specific reference to this fact. It says:
The broad basis of transfer
That is the transfer of functions from the Minister of Housing and Local Government to the Secretary of State for Wales,
… is that all the Minister's functions under those enactments are transferred except functions which consist of the making of major regulations and other instruments affecting England and Wales as a whole".
It has always been recognised that negotiations between local government servants, that is to say, between those bodies representing local government servants, and the Government, have been a matter of national concern, and not of any local concern. That was the reason why Section 60(2) of the Local Government Act, 1958, was excluded from the

functions transferred to the Secretary of State for Wales.
I am sorry if I have risen to my feet after the Under-Secretary has spoken and have put this problem to him. The right hon. Gentleman the Secretary of State for Wales is here and if he can answer my question and satisfy me on this I shall be only too happy. On the face of it, it looks as if Article 54 of the present Order was outside the powers granted to the Secretary of State under the 1965 Order. I hope that the right hon. Gentleman will be able to satisfy me and I hope that he has not been ultra vires. It is the duty of Members of this House to study the Orders which come before them in this way and if there is doubt, if it is questionable whether a Minister or a Secretary of State has exceeded his powers, then the point should be raised.

Mr. Ifor Davies: By leave of the House, I would take the opportunity of replying, first to the hon. Member for Hereford (Mr. Gibson-Watt). May I thank him for his generous remarks about my right hon. and hon. Friends and myself and may I return the compliment and congratulate him on his appointment as spokesman for Welsh affairs. If I may use an expression with which I think he is familiar, because he is a cricketer, I would remind him that he will have to bowl very fast to bowl out my right hon. Friend the Secretary of State.
He asked why the Order is coming in on 1st April and not sooner. The answer is that it comes into force on 1st April, the beginning of the financial year, and it was not ready at that date in 1965. That is the first point. The second is his question, why produce an Order rather than a Bill? The answer is that the procedure for the implementation of the proposals of the Local Government Commission for Wales is prescribed in Section 23 of the Local Government Act, 1958, and these proposals are implemented by way of an Order by the Secretary of State, which is subject to negative Resolution. That is laid down.
We welcome very much the contribution of the hon. Member for Crosby (Mr. Graham Page). He was quite right in saying that Orders of this kind must be the subject of the closest scrutiny of the House, and I would say on behalf of my


right hon. Friend that we are quite satisfied regarding the position. I would add that Article 54 is made under Section 38 of the Local Government Act, 1958, and I would refer the hon. Member to Section 38, which puts the position clearly, and I hope to the satisfaction of my right hon. Friend.

Mr. Anderson: Though not entirely satisfied with the answer given by my hon. Friend, for some of the reasons given by hon. Gentlemen opposite, I beg to ask leave——

Mr. Graham Page: No.

Mr. Anderson: —to withdraw the Motion.

Mr. Graham Page: With the leave of the House perhaps I may speak again in reference to the answer which I have received from the Under-Secretary of State on Section 38 of the Act. Section 38 only allows certain ancillary and transitional provisions. It certainly does not over-rule the very clear Section, Section 60, of the Act.
This has happened on many more occasions than one when Prayers have been brought before the House at this time of night and matters have been raised about the power of a Minister making an Order. It happened on no fewer than three or four occasions during the last Parliament. On each occasion, at this late hour of night, when it is difficult to continue to question a Minister, a matter was brushed aside with the remark, "We are quite satisfied this is all right" or "We have been advised that it is all right".
I assure the Minister that Section 38 is not the answer to this at all. It cannot possibly overrule the fact that in Section 60 the powers for providing for compensation for local government servants are embodied, and nowhere else in the 1958 Act, and it is that Section 60 which is deliberately the one Section excluded from the transfer of functions to the Secretary of State. I cannot feel—that is why I interrupted when the hon. Member for Monmouth (Mr. Anderson) sought to withdraw the Prayer—that this is a satisfactory answer to the problem which I put to the hon. Gentleman.

Question put and negatived.

SOUTH-EAST NORTHUMBERLAND (INDUSTRIAL DEVELOPMENT)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Walter Harrison.]

11.4 p.m.

Mr. Edward Milne: The subject to which we would draw attention on the Adjournment tonight is the economic and industrial development in South-East Northumberland. It may seem strange to commence a debate of this description by describing the period through which we are moving as one of the most encouraging in the history of the area.
In past Adjournment debates, it has been necessary to utilise the time at our disposal to prod Governments into action. I believe that we are now able to plan progressive industrial and economic development in South-East Northumberland and within my constituency, not only for the next three to four years, but for the next two to three decades.
We are dealing with a part of Britain which saw the dawn of the first Industrial Revolution and made an outstanding contribution to it, and I think that it is permissible, even at this late stage in the proceedings of the House, to refer to the political representation of this area, because it sent to Parliament the first representatives of Labour in Britain. The names of Thomas Burt, Charles Fenwick and Bob Smillie spring to mind as having represented this area in the past, and indeed laid the foundations of the present Government's political success which has made economic and industrial advance in the area a real possibility in the months and years that lie ahead.
Claims have been made that the successes of the last 17 months arose to a large extent from the fact that the Administration which preceded the 1964 Government had, through the medium of the Hailsham Report, laid the foundations of that progress, and indeed made them available. One can only say that the significant factor of that Report was that the date on its front page was November, 1963, some considerable time after the Government of the day came into power, and that they were then trying to do a job which should have been tackled


between 1954 and 1957 when the unemployment figures for that area were running at the national average.
At the moment we are facing the loss of about 8,500 job opportunities in the area due to the contraction of the mining industry, and it is therefore necessary to look ahead and to make the plans for which we have asked, despite the fact that the figures for people at work in the area are the best for some considerable time.
I want, briefly, to discuss the problems of a particular age group. I am thinking of the over-50s, and the training facilities which can be accorded to them. We have seen at Felling, and we are looking forward to seeing at Killingworth, the training centres and rehabilitation units which will lay the foundations of this training. I am sure that my hon. Friend who is to reply to the debate will agree with me when I say that the type of labour which is available in the area—which he has visited and seen—is adaptable and ready to fit into any of the newer industries which can be brought to the area. I want to dispel the idea that has been put forward in certain quarters that this age group and this type of labour force should be used in small productive units making pit clothing, footwear, and other articles of this kind. We want to see this age group absorbed into the general industrial pattern and development of the area, not in a secluded section of industry but part of the wider industry of the area, and making a major contribution to it.
We have referred in the past—in fact, we did so in our maiden speech—to the fact that if the employment prospects and the employment position in the area were really to be safeguarded for the period that we mentioned at the outset of our remarks, the question of a major power plant in the area was one that the Department might have to examine.
I want to refer to the success of the advance factories which the Government have sited in the area, and the policy of attraction that has flowed from it. In two parts of the area, in Cramlington and Blyth, we have seen the success of this Measure, and we want to draw attention to the fact that the recently added area of Bedlington—recently added in the sense that it was made a development district—is the one section of our con-

stituency which at the moment is not enjoying the benefit of an advance factory.
There are two points which I know are receiving the attention of the Department. The first is the question of increased employment for disabled persons through Remploy. We are hoping to see in the near future the transfer to Blyth and its enlargement there—with more places for disabled men and also the possibility of disabled women being dealt with—a factory of this description, because this does two things. It not only gives us a large area for the type of work being done by Remploy, but it allows one of our local firms based on the electronics industry to expand—and the expansion of that type of industry is something that the North-East is very much looking forward to.
The other question of that of science-based industry. Here we are looking with considerable interest to the Gas Council's Engineering Research Station at Killingworth—a station which will examine the engineering problems of gas and natural gas, which should lead to the proper development of a gas grid and the economic and industrial use of gas and oil finds in the North Sea as a new source of power, and which may be the basis of the new industrial revolution which we have mentioned.
It is not necessary or opportune at this time to talk about the social ownership of the new resources which are being brought from the bed of the North Sea, but this may be another of the methods by which the industrial expansion of the area can really be fitted into the pattern of the modern Britain that we are proceeding to build. I made the suggestion some time ago, not only on the question of industry itself but also on the question of adding to the amenities of the area, that somewhere on our coastline between Blyth and Tynemouth the local authorities, in conjunction with the Department, should look at the question of the siting of a conference hall, which could be used not only for conferences but for lengthening the season, helping the hotel and boarding house trade, boosting the area, and bringing it to the notice of a wider public, and also, in the period when no conferences are being held, using it for the extension of the cultural activities of the area itself.
In the time at my disposal, I have tried to give some idea of the outlook for the future which we feel will provide the pattern for the area of South-East Northumberland to play its part in the second industrial revolution which we are approaching in the same way as it did in the past. We are certain that the political and industrial resources, the manpower and ability of the area with its skills will make this one of the most hopeful and progressive periods in its history.

11.16 p.m.

The Minister of State, Board of Trade (Mr. George Darling): I am grateful to my hon. Friend the Member for Blyth (Mr. Milne) for once again drawing the attention of the House and to Ministers the needs and prospects of South-East Northumberland, a very important development area—I agree with my hon. Friend about that—of which his constituency is a part.
My hon. Friend started by mentioning one of the most difficult problems with which we have to contend in the immediate future in the industrial development of the area. That is the problem of the older miners who will be made redundant when the mine closure policy becomes fully operative. I say this from my experience generally and from particular experience which, as my hon. Friend knows, I have had in dealing with this situation in the North-East, particularly in Northumberland. Any industrialist who is thinking of settling in one of these areas where there are older miners becoming available for work outside the pits and wants to know what kind of labour is available for him and whether it is good, adaptable labour, cannot do better than get these men. They are adaptable.
We have seen in some of the factories which my hon. Friend and I have visited together that they make excellent factory workers. Employers who employ them are very pleased indeed to have them on their payrolls. Provided that training schemes both in the centres for which the Government are responsible, but more particularly in training schemes within industry are satisfactory, because of the adaptability of these excellent workpeople an employer of labour is on a very good thing. He

need not worry about a high rate of labour turnover. There will be no high rate of labour turnover so long as working conditions and wages are satisfactory because most of these men do not want to move on to a second job. They have left the pits through no fault of their own, and if they can be provided with factory work, especially in light engineering or anything to do with mechanical operations, they are there to do a job of work and will stick to the firm until they retire. There are tremendous advantages to the employer of labour in getting these ex-miners.
As my hon. Friend probably knows, the situation with regard to the number of men who may be available for work through mine closures can be exaggerated. According to estimates we have, the rundown of miners in the Northumberland coalfield in the next five years will be about 8,500. This compares with 8,400 who left the mines in that coalfield in the previous five years. As my hon. Friend knows, the opportunities that have been provided for increased employment have more or less taken up the men who previously lost their jobs. Nevertheless, this situation disguises a rather serious problem because between 1958 and 1964 there was an actual reduction of 14,000 jobs for men in the Northumberland area, and one of the things that we have got to do is not only to make sure that the redundant coalminers are found work, but to stop this drift away from the area. The loss of job opportunities gives rise to a serious migration problem with all the attendant consequences on social capital invested in the area, unless steps are taken in time to deal with an unemployment situation of this kind.
With regard to training, the Ministry of Labour is planning to set up a new Government training centre offering nearly 200 places, and an industrial rehabilitation unit as well in the new town of Killingworth. That is slightly south of the area covered by my hon. Friend in his definition of South-East Northumberland, but it is well within travelling distance of it.
In this connection, my hon. Friend raised the question of the Remploy factory at Bedlington and he suggested that this might move to a factory on the Kittybrewster industrial estate at Blyth.


As he rightly pointed out, if this move took place it would have two consequences, both desirable. It would mean that the electronics firm at Bedlington would have premises, ready made for its own expansion, which would be a very good idea, and the move to Blyth would benefit the disabled men who are concentrated in that area and particularly those associated with the coalfield. All I can tell my hon. Friend is that discussions between the Board of Trade and the parties concerned about the possibility of building a factory for Remploy at Blyth and, therefore, facilitating the move that he has described, are going on and we are hoping that the outcome will be satisfactory within a relatively short space of time. Of course, this will help to provide additional Remploy jobs in addition to those that we have already been considering before this suggestion of a move came along.
My hon. Friend went on to talk about the development of science-based industries. This again is tremendously important because in the past we have been considering development areas, and particularly in the North-East. The main purpose that we have had in mind has been to provide employment, to find jobs, and when we talk about science-based industries, what we seem to be concerned about is getting a great deal of technical progress into our industries which in the nature of things reduces the number of jobs available. So that we do not want to have concentrated in what we now call development districts all the industries that are—to use the economist's term—labour intensive and have all the capital intensive industries in other parts of the country. We have got to have a better balance than that.
Therefore, I agree with my hon. Friend that the setting up of the Gas Council's new Engineering Research Station, also to be sited at Killingworth—Killingworth is going to become one of the most important industrial areas in the country before long—is to be welcomed. It is going to be quite a large mechanical engineering research station and it will be primarily concerned with the distribution of gas, particularly natural gas.
This is another prospect which the North-East faces. To some extent one

could argue that this will work to the disadvantage of the basic industry there of coal production, but I am quite sure that if there is a great deal of natural gas in the North Sea and it can be brought out and we can begin development of that gas on a large scale, with associated industry which could use the gas as the basis of their power, everything will work out, and we shall have in that part of England, instead of a group of industries depending on coal, a flourishing new group of industries using natural gas for their power supply.
As the hon. Member probably knows, the Minister of Power, in an answer to a Question in this House on 26th April, said that he was discussing with the gas industry the question of pipelines and equipment for the handling, distribution and use of North Sea gas in the context of their capital development programmes. So things look very hopeful in that part of the world.
The hon. Member also raised the question of advance factories. These are magnets which draw industry into the area. I do not need to explain to hon. Members the advantages of having a well organised programme of advance factories, where factories are placed exactly at the points where one has to deal with unemployment problems. One can use them not only to provide work but as magnets to attract other industrial developments.
Experience over the years in the use of advance factories for this purpose proves that this is a policy we must continue. Therefore, there will be another round shortly of advance factories. Obviously, I cannot at this stage say where they will be, but in view of the Government's promises that advance factories will be used in development areas to deal with mining closures, it is a pretty safe bet and a pretty safe guess that South-East Northumberland will not be left out. That is as far as I can go at the moment. An announcement will be made before very long.
The other point which the hon. Member mentioned was the siting of a suitable conference hall on what I would call the holiday coast of Northumberland. This is a good idea, but there is not much point in having a conference hall unless there is adequate hotel accommodation for the delegates. This is a problem which is intimately associated


with the development of tourism in Britain: to make sure that we have in the appropriate parts of the country good hotel accommodation, restaurants and conference halls. There is no earthly reason why the North-East should not become one of the areas to which traditional conferences, cultural associations and so on should come for their meetings, and why it should not become far more important as a holiday centre.
I will not expound on the natural beauties of Northumberland, which tends to be neglected from that point of view of tourism. It deserves far closer attention. Associated with this is the development of cultural activities to which the hon. Member referred. I cannot go into detail on some of the ideas which I know are coming forward through the North-East Development Council, but it is one of the most exciting areas in the United Kingdom.
Developments are coming, as I have said in public up there, which I am confident will in a relatively short time and perhaps during this Parliament get rid of the unemployment the area has suffered from for so long. I hope the unemployment problem will be swept away and that this will become a flourishing area of industrial development, and one which is attracting back to it the people who migrated away because of unemployment in the past.
I assure my hon. Friend that, through the regional development council, through the Board of Trade and through other Ministries, we shall do all we possibly can to keep the progress which has already been made going along at an even faster rate.

11.30 p.m.

Dame Irene Ward: I am delighted that the hon. Member for Blyth (Mr. Milne) has raised the whole question of development in the North-East. I was very glad to hear what he said and to

listen to what the Minister had to say on the matter. Reverting to what was said about the development of the tourist trade and the need for new hotels, an up-to-date conference hall and the like, I expect that the Minister and the hon. Gentleman will know that those plans are well in hand now in our part of the world and that we have opened and are to open some big new developments of this kind. That ought to help tremendously.
I was very glad to hear what was said about advance factories, and I am delighted to be able to add that that policy was thought out and developed by the Government which I had the honour to support. I am pleased that it has proved such a success, because all of us want to do the best we can for the North-East Coast.
I always note with great interest what is happening in Blyth, because when I first entered politics, Blyth was in my constituency. I fought it twice, unsuccessfully, but, nevertheless, like the Minister, I love the people there. I know their quality. I know that we all want to do the best we can for them, and I am always very proud that, even in the 1930s when we were at our lowest in the depression, it was the Government of the day and my leader Mr. Baldwin who thought out the new ideas on which so many Governments have since built.
I hope that as a result of the efforts of the present Government, in line with what has been done in the past and pursuing all the new ideas coming forward, we shall make of the North-East Coast the kind of place we all know it can become, where happiness, prosperity and a really progressive future will be available for all.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes to Twelve o'clock.